EUR USD (1.3195) After the first tranche of LTRO was disbursed some observers heralded it as a panacea for the eurozone economy. Later a sort of consensus emerged that the funds had successfully relieved the funding stress of the eurozone banks. Post LTRO2, it seems the market is impatient to see the new liquidity trickle into the real economy, not least because it more or less anticipates the LTRO2 to be the ECB’s last liquidity injection at this massive scale. On the back of the data that the eurozone banks have parked over €820 billion at the overnight deposit facility, a Reuter’s poll of traders suggests that they interpret these deposits as equivalent to hoarding and do not think that the funds will help the broader economy. In any case the amount deposited in the ECB has already exceeded what the ECB had suggested to be the European banks’ funding needs for 2012. We reckon that it is too early to judge the ramifications of LTRO2 for the real economy. Banks can only take up the LTRO when it is available and this timing might not necessarily coincide with their investment plans. However, if the deposits remain unchanged or increase over time, then the euro investor anxiety is likely to grow.
Yesterday the euro slid under the lower threshold (1.3185) of the consolidation zone leaving it well supported now only at 1.3070. An early return above 1.3240 would be a positive sign, but only a break of 1.3340 would signal a positive outlook with potential to 1.3590.
Click here to read the full report: Daily forex 03.06.12
Deutsche Bank