EUR USD (1.2290) The Mario Draghi risk-on rally extended into Friday, resulting in the largest one-week gain for the euro in two months. Sceptics poured scorn on ECB president’s comment from the outset because, they claimed, it lacked substance. However although Draghi didn’t actually announce any specific policy, his elaboration of the problem was very detailed. He singled out high sovereign bond yields in countries like Spain as the principal impediment to the effective transmission of monetary policy. As long as a high risk premium is applied to the sovereign, domestic banks have their hands tied. It was the market that extrapolated his comments to the idea of large-scale bond buying, not Draghi. However, good decision-makers recognise that a problem well stated is a problem half solved. The Bundesbank’s first response to the Draghi comments was, unsurprisingly, a firm rejection of bond-buying by the ECB. This probably explains why the single-currency has pulled back today. What is more critical to know at this stage, though, is whether Jens Weidmann and the rest of the Governing Council agree with this definition of the problem. This should indicate whether crisis is half solved. The euro remains stable for now and maintains its upward potential to 1.2465 (slightly lower). The best support is still down at 1.2150.
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Deutsche Bank