EUR USD (1.3480) A collection of surveys estimating the LTRO2 take-up amount averages out around €500 billion. The figures indicate an attempt by investors to understand an event with repercussions (while generally now confirmed to be positive – Italian and Spanish bond yields are lower) which are nevertheless unrecognisable immediately. The only known components are the roll-over estimates which could be used to determine the genuinely new liquidity in the market post-LTRO2. As was the case last time, only when Mario Draghi revealed that the banks which borrowed were not necessarily the ones which parked money on overnight deposit could one reckon that the money might have been used to purchase sovereign bonds. This time around too, if LTRO2 unleashes appetite for sovereign paper, or if the ECB can provide evidence, perhaps in few weeks, that loans to the private sector increased, then the growth-inducing impact would be more welcome. If, on the other hand the entire borrowing is simply re-deposited at the ECB, this would rather suggest that these banks see the ECB as the only trustworthy institution in the system. Of course, neither of these conclusions can be reached by simply knowing the size of the LTRO alone. The pullback in the euro on the back of news about Ireland referendum on fiscal pact proved to be short-lived. We continue to see the potential to 1.3595 with support at 1.3285.
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Deutsche Bank