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The ECB announced QE. Buying sovereign bonds in a Quantitative Easing program finally happened, and it happened big time. Draghi seemed determined and rightfully so.

The initial market reaction was somewhat hesitant but the euro began it’s slide. Is that all? Probably not. Here are 5 points about why the move is huge and why it should impact EUR/USD quite severely:

  1. Big flows: 60 billion is more than estimates of 30-40 billion and 50 billion leaked just on the previous day.  As Draghi stressed, the flows are  certainly  meaningful.
  2. Big size: With the intended end date of September 2016, the program has an intended size of over 1 trillion,  at the very top end of market  expectations. Initial  staff preparations were reportedly only at around 500 billion and the markets were moving towards 750 billion. Thomas Jordan of the SNB probably knew about this last week.
  3. Basically open ended: While it has an intended end date, the ECB is committed to act until inflation expectations are back to the desired levels of 2% in a sustainable manner. What is sustainable? How are inflation expectations exactly defined? The program could basically stay on auto pilot for a long time before some kind of tapering is announced.
  4. Risk sharing is minor: The compromise to appease the Germans was  basically dismissed by Draghi. As long as the euro is stable, the topic of risk sharing and a decentralized move is not really that important.  And while Greece is  currently excluded, it could be included when Greece exits the program.
  5. Broad agreement: There was a consensus on the need to act and  a unanimous agreement that QE is a legitimate monetary policy tool.  Draghi did manage to win over the Germans right here.

What do you think?

More:  EUR/USD Rapid Slide Could Continue Until Parity – RBS