The highly gossiped about European Central Bank QE program is finally out! And the markets are for sure reacting. Here are 4 takeaways from today’s market rocking announcement and what you could expect to happen to the Euro coming up.
1- Surprise Banging QE Program
Welcome to a new era of QE! Super Mario (AKA Mario Draghi) had his highly anticipated historic pledge this morning, and he most certainly didn’t disappoint anyone. He said the European Central Bank is looking to buy government bonds as part of an asset purchase program worth about 1.1 trillion euros ($1.3 trillion) .
They will basically start an open-ended expanded monthly 60 billion euro ($70 billion) private and public bond-buying program, which could last until at least 2016.
Most analysts were anticipating a 50 billion euro-per-month program, so the ECB definitely got the markets rocking by their decision.
This is a kind of a QE that has already been introduced by the U.S. Federal Reserve, Bank of Japan and Bank of England, so kudos to super Mario for finally catching up!
2- Aiming for 2% inflation rates
Super Mario is hoping that with their shock-and-awe QE move, they will achieve their aim of inflation rates close to but below 2 percent.
Explaining the ECB’s decision, Draghi said: “Inflation dynamics have continued to be weaker than expected. While the sharp fall in oil prices over recent months remains the dominant factor driving current headline inflation, the potential for second-round effects on wage and price-setting has increased and could adversely affect medium-term price developments.”
3- ECB Keeps key Interest Rate Unchanged
Earlier in the day, the ECB announced it would hold its main interest rate unchanged. It kept its main refinancing rate at 0.05 percent, with the rate on its marginal lending facility at 0.30 percent. The rate on its deposit facility was held at -0.20 percent. The obvious market reaction at the time was a “no reaction’ which was followed by drops after QE announcement, which was followed by a massive drop after the QE announcement.
4- Mr. Euro Broke Below Key Support Level
The single currency of the eurozone dropped against most of its major counterparts. One of the biggest drops was against the Japanese yen which dropped 300 pips, and testing below the key support level at 135.00.
On the EUR/USD pair on the weekly forex dance floor confirmed below the key support level and our previous bearish target of 1.1635, and we could see further drops to the lows of 2003 at 1.1343 and 1.0835.
Now if the markets decide they are not going to be wiggled by super Mario and stop selling the euro, a break above the 1.16 level could change the direction back to bullish with 1.2070 as first alternative target.
Find out more about other pair movements today here in our technical analysis article.