Incisive market commentary from David Morrison

Stay ahead with our market commentary and webinars from our in house market strategist

Open a Live AccountOpen a Demo Account
+ Show blog menu



Expand 2017 <span class='blogcount'>(348)</span>2017 (348)
Collapse 2016 <span class='blogcount'>(483)</span>2016 (483)
Collapse December <span class='blogcount'>(23)</span>December (23)
Market info update: Christmas & New Year's 23rd December 2016 - 2nd January 2017
20 Dec 2016
Investors ponder US inflation outlook - AM Briefing
16 Dec 2016
Markets react to FOMC “dot plot” - PM Bulletin
15 Dec 2016
Dollar soars on hawkish “Dot Plot” - AM Briefing
15 Dec 2016
FOMC rate decision in focus - Video Update
14 Dec 2016
Countdown to FOMC rate decision - AM Briefing
14 Dec 2016
US Federal Reserve look-ahead - PM Bulletin
13 Dec 2016
Federal Reserve begins two-day meeting - AM Briefing
13 Dec 2016
Bollinger Bands explained - Trading Guide
12 Dec 2016
Crude gaps higher and lifts equities - AM Briefing
12 Dec 2016
Trump surge morphs into Christmas rally - AM Briefing
09 Dec 2016
ECB tapers bond buying programme - PM Bulletin
08 Dec 2016
All eyes on ECB - AM Briefing
08 Dec 2016
Look-ahead to tomorrow’s ECB meeting - Video Update
07 Dec 2016
European stock indices surge higher in early trade - AM Briefing
07 Dec 2016
What is the MACD indicator? - Trading Guide
06 Dec 2016
Quiet start for European trading - AM Briefing
06 Dec 2016
Technical Indicators - Moving Averages - Trading Guide
05 Dec 2016
Italian PM Renzi resigns after losing referendum vote - AM Briefing
05 Dec 2016
US Non-Farm Payroll update - PM Bulletin
02 Dec 2016
Non-Farm Payrolls in focus - AM Briefing
02 Dec 2016
Non-Farm Payroll look-ahead - PM Bulletin
01 Dec 2016
Crude holds gains after OPEC move - AM Briefing
01 Dec 2016
Expand November <span class='blogcount'>(41)</span>November (41)
Expand October <span class='blogcount'>(37)</span>October (37)
Expand September <span class='blogcount'>(41)</span>September (41)
Expand August <span class='blogcount'>(52)</span>August (52)
Expand July <span class='blogcount'>(38)</span>July (38)
Expand June <span class='blogcount'>(42)</span>June (42)
Expand May <span class='blogcount'>(42)</span>May (42)
Expand April <span class='blogcount'>(45)</span>April (45)
Expand March <span class='blogcount'>(41)</span>March (41)
Expand February <span class='blogcount'>(42)</span>February (42)
Expand January <span class='blogcount'>(39)</span>January (39)


It’s been a wild ride for the euro today. The single currency soared after the European Central Bank (ECB) released its monetary policy decisions. But it subsequently slumped as traders and investors looked beneath the headlines.

Ahead of the meeting the general expectation was that the ECB would extend its bond purchase programme beyond March 2017. The consensus view was that the central bank would continue quantitative easing until September next year. This outlook was strengthened after Italian Prime Minister Matteo Renzi lost his referendum on constitutional reform on Sunday.

However, there was a worry that the central bank may taper its purchases from the current €80 billion per month. And that’s exactly what it did. The ECB said that it would extend its bond buying from March to December 2017 (slightly longer than the September 2017 end date expected). However, it also said that it would do this at a reduced rate of €60 billion per month, down from the current €80 billion per month rate. The euro soared on the news as the computer algorithms and humanoid traders picked up on the €60 billion number and interpreted that as a cut in stimulus. But in simple mathematical terms it really isn’t. After all, if the consensus expectation was for a six month extension of the €80 billion per month bond purchase programme then we’re talking about €480 billion of extra stimulus (€80 billion x 6 months). But instead the ECB extended the programme by 9 months while reducing its purchases to €60 billion over this period. So, that’s €540 billion of additional stimulus (€60 billion x 9 months). Once traders had done their sums the euro gave back its gains, and more.

Overall the changes in the ECB’s quantitative easing programme didn’t appear to be a massive deal. But it’s also a question of perception. There’s an argument that says that the ECB is now closer to winding down its programme of monetary stimulus than many investors had expected. But the central bank also covered itself by saying that "if the outlook becomes less favourable or if financial conditions become inconsistent with further progress towards a sustained adjustment of the path of inflation, the Governing Council intends to increase the programme in terms of size and/or duration."

The euro fell further as ECB President Mario Draghi began to deliver his prepared comments ahead of his press conference. Investors and traders paid more heed to Mario Draghi’s assurance that the ECB was prepared to increase its bond buying programme if required as he emphasised that risks to Euro zone growth were still tilted to the downside.

Looking at a longer-term chart of the EURUSD we can see that the area around 1.0500 is crucial as support. It has now tested this area on four separate occasions since March 2015. A break and close below here on a weekly chart could easily open up the prospect of a move to parity and below. However, much could now depend on next week’s Federal Reserve meeting and the FOMC’s outlook for future monetary tightening.


Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.


Posted by David Morrison

Category: PM Bulletin

Add a comment Add comment            


© 2018 Spread Co Limited. All Rights Reserved.

Spread Co Limited is a limited liability company registered in England and Wales with its registered office at 22 Bruton Street, London W1J 6QE. Company No. 05614477. Spread Co Limited is authorised and regulated by the Financial Conduct Authority. Register No. 446677.

Spread betting and CFD trading are leveraged products and can result in losses that exceed your deposits. Ensure you understand the risks.

Losses can exceed deposits. Click here to learn more.