While the estimate certainly differed, an uptake of only 82.6 billion euros is quite low. This means that banks were somewhat shy to take money, and that the ECB balance sheet is expanding only slowly and that there is a better chance of a bigger ABS and full blown QE.
The initial reaction was a higher euro, but the is now sliding.
Mario Draghi can be disappointed by the outcome: the banks don’t want his money.
But, if the outcome of this poor auction means a lower value of the euro, he may be smiling quietly inside, as this pushes inflation higher without having to do too much.
More details:
- Perhaps one bank takes 14% of the total
- However, the number of bidders is high, and this is a positive. There were 255 bidders.
More points to ponder about.
- There is more pressure on the December TLTRO. No big take up will then mean a much higher chance of QE.
- It’s important to note that in Spanish banks are already much more willing to lend to the real economy, something that began with the announcements. So, perhaps there was no real need for these loans?
Estimates of around €150 billion were thrown into the air towards the event, but the ranges were quite wild.
EUR/USD was recovering from the FOMC blow and trading around 1.2885 before the publication.
The ECB announces the results of the first Targeted Long Term Refinancing Operations (TLTRO), which are basically cheap loans to banks on the condition that they lend the money to the real economy. The measures were announced in June. A second installment of the TLTRO will be announced in December.
Since then, the ECB cut again and announced another measure of enhancing its balance sheet, via the ABS program.
Support awaits at 1.2860, followed by 1.2835. Resistance is at 1.2920. For more, see the euro $ forecast.
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