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Forex Analysis: Thoughts Ahead of ECB Press Conference

By , Currency Analyst
06 December 2012 13:15 GMT

The European Central Bank Rate Decision produced uninspiring results; but the focus is on President Mario Draghi's press conference at 08:30 EST / 13:30 GMT. The press conference will likely be just as disappointing. Earlier this week, word from Spain was that the country would seek a bailout if the ECB would keep its longer-term yields within 2% (200-bps) of their German counterparts. Clearly, this is a case of the 'tail trying to wag the dog,' something the ECB won't allow. If the ECB allows Spain to dictate the terms of its bailout, moral hazard would become prevalent across the region - why would Italy or Greece be treated as inferior?

Accordingly, what we'll likely hear from President Draghi is that the ECB remains ready to utilize its OMTs, and that it is up to each individual country to decide if they will meet the conditions of the yield capping mechanism. We already know that Spain doesn'lt like the conditions (they haven't taken a bailout; if the deal was that favorable for them, Prime Minister Mariano Rajoy would have jumped already), so it is unlikely that market participants find much of a silver lining at this presser.

Join me in the DailyFX Live Trading Room to discuss the press conference at 08:20 EST / 13:20 GMT (press conference starts at 08:30 EST / 13:30 GMT).

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

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06 December 2012 13:15 GMT