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ECB Reaction: EUR/USD Surges on Large ECB QE Package - Update

ECB Reaction: EUR/USD Surges on Large ECB QE Package - Update

2020-06-04 12:25:00
Justin McQueen, Analyst
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EUR/USD Price Analysis & News

  • Larger Than Expected ECB Package
  • Euro and BTPs Soar

Bottom Line: Larger Than Expected ECB Package

The ECB announced that it would add EUR 600bln to its Pandemic Emergency Purchase Program (PEPP), exceeding expectations of EUR 500bln, while also extending the program till June 2021. Alongside this, the ECB noted that it would reinvest maturing PEPP bonds until the end of 2022 at least, which is of note, given that it would allow the ECB to be able to deviate more from its capital key and for longer (beneficial for peripheral debt).

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Euro and BTPs Soar

In reaction to the larger than expected stimulus package, the Euro jumped to fresh highs of 1.1270 from 1.1200. However, the largest move had been observed in Italian bonds as BTP futures soared on the announcement (BTP yields dropping to fresh lows). Keep in mind, that BTPs has been the largest beneficiary of the ECB’s stimulus program with the central bank noting this week that in the first two months of PEPP, Italian bonds had taken up the largest share of the purchases.

EUR/USD MIXED
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 10% -6% -2%
Weekly -7% 12% 6%
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*** ECB Lagarde Press Conference Recap - Update ***

In the press conference, ECB’s Lagarde noted that the central bank had not discussed including junk bonds into the program. However, one aspect to focus on for the minutes, which will be released later this month is that there had been a “broad” consensus over the size of PEPP, suggesting that not all members had agreed to the size of EUR 600bln.

Economic Forecasts

ECB Reaction: EUR/USD Surges on Large ECB QE Package - Update

Source: ECB

EUR/USD Price Chart: Intraday Time Frame

ECB Reaction: EUR/USD Surges on Large ECB QE Package - Update

Source: DailyFX

Italian BTPs Price Chart: Intraday Time Frame

ECB Reaction: EUR/USD Surges on Large ECB QE Package - Update

--- Written by Justin McQueen, Market Analyst

Follow Justin on Twitter @JMcQueenFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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