Euro Rally May Be Short-Lived

In an emailed statement, the ECB began discussing its plans for what it may be do when it begins tapering its asset purchase program. In the email, a reference is made to the possibility of extended QE beyond its current end-date of March 2017, depending on the outlook. But the majority of market attention is focused on the word “tapering.”

The informal consensus among officials at the ECB is that, when it comes time to discuss the end of QE, QE would need to be slowed gradually. One scenario is to tape QE in intervals of EU10bn/month. But the council has not actually discussed the future path of QE. The actual timing and decision-making regarding the extension or tapering of QE depends on the economic outlook. This is simply a consensus on the need to taper QE before it ends, not a consensus on the need to taper QE now or in the near future.

Chart 1: EUR/USD 1-minute Chart (October 4, 2016 Intraday)

In the immediate wake of the news, the Euro spiked higher against the dollar. The pair rose from $1.11563 to $1.12149 immediately and as high as $1.12382. The gains are already beginning to reverse as, at the time this report was written, the pair was trading at $1.11976.

--- Written by Omar Habib, DailyFX Research

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