EUR/USD (1.4095) When asked in the post-meeting press conference why the ECB wasn’t actively buying eurozone bonds, President Trichet responded, “You will see what we do”, adding that he wouldn’t be surprised to see something in the market before the end of the teleconference. Indeed, the Italian 10-year bond chart shows a meaningful spike about 30 minutes into the press conference. Nevertheless, the ECB had the chance to signal its participation in the spirit of coordinated intervention yesterday, but it chose to remain obscure when traders clearly expected transparency. The window was still open, following actions by the Bank of Japan and the Swiss National Bank, to imply a concerted effort and thereby to magnify the effects. Instead, traders were obviously not soothed by the mere announcement that the ECB will revive its government bond purchase programme after a 16-week lull. All around the globe, stock and commodity markets lost several percentage points in value, while traders again sought safe haven in the yen and the Swiss franc. Given the prevailing volatility, the EUR/USD wasn’t much affected even if our euro-bullish strategy fell victim to the turmoil. Perhaps it is because many investors judge the one currency to be no better than the other. China views the situation somewhat differently: Foreign Minister Yang Jiechi reportedly said this morning that “China has always been confident about the eurozone and euro”.
Supports lie at 1.4010 and at 1.3970; stability waits beyond 1.4325.
Market Bias Index
The euro is again perceived as undervalued against the US dollar, and the Australian dollar now carries the largest undervaluation bias. In contrast, the Swiss franc is likely perceived as the most overvalued currency.
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Deutsche Bank
Fixed Income Research – Global