ECB Quick Analysis: Where is Lagarde's largesse? Failure to add QE may send EUR/USD tumbling

  • The ECB left its QE plan unchanged and only said it may increase them.
  • Several tweaks in its policy are insufficient to convince investors. 
  • EUR/USD has significant room to fall, especially if spreads continue widening.

The European Central Bank has had its say – by leaving the bond-buying program unchanged, far from what is needed. The ECB has disappointed investors and the euro may suffer. The Frankfurt-based institution left the PEPP bond-buying scheme unchanged at €750 billion and only said it is ready to increase it and let it run through the year-end. That is insufficient amid the rapid pace of deploying funds and the gravity of the situation, as data has shown.

The ECB announced the Pandemic Emergency Purchase Program (PEPP) in an emergency meeting on March 18 and the money is running out fast. The bank's front-loading – to alleviate investors' fears about government funding issues – implies that funds will run out around October. 

Earlier, eurozone Gross Domestic Product figures were grim. The Italian economy shrank by 4.7% in the first quarter the Spanish economy shrank by 5.2%, and the French one by 5.8% – the worst contractions since Word War II. As a whole, the euro area's output plunged by 3.8%, worse than expected, and is still prone to revisions once Germany's data is out. Moreover, there is no doubt that the second quarter will be far worse. 

PELTROs: The ECB did announce a serious of tweaks, including easing lending conditions to banks on condition of them borrowing them to the real economy. One of the new programs is called pandemic emergency longer-term refinancing operations (PELTRO). This new addition to the bank's alphabet soup is only a minor change and far from enough. The bank also failed to pledge that it would enlarge the program in June when staff release new forecasts. 

The verdict in debt markets is swift – the spread between Italian and German bonds is rising as investors are disappointed.

Growing funding pressures by hard-hit countries may exacerbate the falls in EUR/USD. Targets include 1.0850, 1.0810, and 1.0770. 

More: Market drivers in times of disease, and why bulls should have fear of the dark – Interview with Mário Blaščák


Foreign exchange (forex) trading carries a high level of risk and may not be suitable for all investors. The risk grows as the leverage is higher.
investment objectives, risk appetite and the trader’ level of experience should be carefully weighed before entering the forex market. There is always a possibility of losing some or all of your initial investment / deposit, so you should not invest money which is which it can’t afford to lose. The high risk that is involved with currency trading must be known to you. Please ask for advice from an independent financial advisor before entering this market.

Any comments made on Forex Crunch or on other sites that have received permission to republish the content originating on Forex Crunch reflect the opinions of the individual authors and do not necessarily represent the opinions of any of Forex Crunch’s authorized authors. Forex Crunch has not verified the accuracy or basis-in-fact of any claim or statement made by any independent author: Omissions and errors may occur.
Any news, analysis, opinion, price quote or any other information contained on Forex Crunch and permitted re-published content should be taken as general market commentary. This is by no means investment advice. Forex Crunch will not accept liability for any damage, loss, including without limitation to, any profit loss, which may either arise directly or indirectly from use of such information.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis

Latest Forex Analysis

Editors’ Picks

EUR/USD loses 1.1800 amid escalaing US-Sino tensions

EUR/USD dips sub-18 after the US reported an increase of 1.763 million jobs in July, better than estimated but pointing to a deceleration. Escalating Sino-American tensions are boosting the dollar and fiscal talks are eyed. 


GBP/USD resumes decline, weighed by UK concerns, US-China conflict

GBP/USD trades at fresh weekly lows below 1.3050 as the dollar got a sudden boost from mounting tensions between the world's two largest economies. UK Chancellor Rishi Sunak said the furlough scheme that is underpinning the economy cannot last forever.


XAU/USD drops $50 from record highs to the $2020 area

Gold prices are falling sharply on Friday, trading below $2040/oz at the moment. Earlier on Friday, the yellow metal reached at $2075, a new record high.

Gold News

Bitcoin may extend the recovery once Gold resumes the rally

Gold retreated from the recent highs, but the sentiments are still bullish. Cryptocurrencies resumed the upside, some altcoins are demonstrating strong gains. ETH/BTC stopped the downside correction and settled at $0.03300.

Read more

WTI extends slide toward $41, on track to post weekly gains

Crude oil prices continued to fall on Friday and the barrel of West Texas Intermediate (WTI) touched a daily low of $41.05 before recovering modestly.

Oil News

Forex Majors