ECB Recap: “QE Infinity” Emboldens Euro Bears

Matt Weller, CFA, CMT Faraday Research

It wasn't quite an "empty the clip" decision at ECB President Mario Draghi's penultimate meeting, but the Italian has definitely made a dovish impression.

In its highly-anticipated policy meeting, the European Central Bank made a series of decisions to ease monetary policy and try to stimulate the Eurozone economy:

Cut deposit rates 10bps from -0.4% to -0.5%
Introduced a two-tier system for negative interest rates
Restarted Quantitative Easing at €20B/month effective November 1, with no explicit expiration date
Announced changes to its Targeted Longer-Term Refinancing Operations (TLTROs)

Many of these changes had already been "priced in" to the market, but the decision around QE is interesting. The €20B monthly pace of purchases was smaller than many analysts had anticipated, but the lack of an explicit termination date makes the announcement more dovish than expected. With inflation subdued, growth stalling and negative interest rates becoming entrenched, is the Eurozone turning into Japan? This is the fear of many traders and explains why the euro has fallen back below 1.10 in the wake of the release.

Author

Matt Weller, CFA, CMT

Faraday Research

Matthew is a former Senior Market Analyst at Forex.com whose research is regularly quoted in The Wall Street Journal, Bloomberg and Reuters. Based in the US, Matthew provides live trading recommendations during US market hours, c

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