We’ve said it before in our forex blog, and we’ll say it again: nobody moves markets like Mario Draghi. The euro gained 2.5% on the dollar today an absolutely enormous move. Some $5.7 trillion is traded in currency markets every day, and the Euro-dollar trade accounts for around a quarter of that volume. A move like the one today is very rare in a market with that sort of vast liquidity.
After Draghi, the president of the European Central Bank, dropped hints last month that he was open to boosting the bank’s stimulus measures to support the economy, markets figured that “Super Mario” was laying the groundwork for some monetary shock and awe at the ECB’s regularly scheduled meeting today.
As it happened, Draghi disappointed investors with moves that were less aggressive than expected. Among other measures, the ECB cut one of its key interest rates further into negative territory (from -0.2% to -0.3%) and extended its program of buying €60 billion in government bonds every month through at least March 2017 (from September 2016).
These sorts of actions generally push down the value of the euro—a good thing for the Euro-zone economy these days. A weaker euro boosts growth by making exports from the euro zone more competitive abroad, while it also pushes up prices at home, which guards against the region’s long and dangerous flirtation with deflation. Indeed, the euro has fallen by more than 10% against the dollar so far this year, and 20% over the past two years.
But when the markets think that even more forceful actions are required to break the euro zone —bigger rate cuts, bolder bond purchases—you get a sharp and unexpected move in the opposite direction, like the one today. It isn’t the first time that Draghi’s has sent the euro higher with his comments after an ECB rate-setting meeting, but it is by far the largest in scale:
More common recently have been sharp drops in the euro when Draghi took the mic, which might explain why so many traders were caught so badly off-guard:
Why did Draghi disappoint?
The ECB’s own economic projections aren’t exactly rosy, with GDP forecasts for the next two years lower today than shortly after the central bank started buying government bonds in January:
And inflation is nowhere near the ECB’s target of 2%, with the bank’s latest forecasts showing inflation drifting even further from this goal than at the start of the year:
For this reason, Draghi told reporters, a “very large majority” of the ECB’s governing board reckoned that more stimulus was needed. “We are doing more because it works,” Draghi said, noting that the forecasts for both inflation and GDP would be even grimmer if not for the bank’s efforts to date.
But could things be even better with more aggressive action? The Forex markets have certainly, I think so. Read Platinum Trading Academy’s Forex Blog for more trading related updates and tips.
I would like to re-iterate today’s events again in trading terms and would like to hold a special webinar to discuss Platinum Trading Vs Emotional Trading
- Platinum Methodology
- Rules, trades and discipline
- What happened on December, the 3rd?
- The trades and market times.
- The trading Floor
- If your brains were dynamite you couldn’t blow your hat off…
If you have made mistakes how to deal with them
- The Forex hangover
- The Revenge Trade Itch
- Just one more trade
- The double zero Syndrome.
- Traders Block
- The Trade Plan
Please register for Platinum Trading Vs Emotional Trading webinar on Dec 4, 2015, 10:00 AM GMT at:
The topics covered in this webinar will range from the trading day yesterday to all the way to psychology of revenge trading.
After registering, you will receive a confirmation email containing information about joining the webinar. I totally understand that this is short notice but there we will start sharply at 10:00.
Have a fantastic weekend my friends and thank you for reading our Forex Blog!
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