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Draghi Vows to Act in Markets and Address Seniority –

Mario Draghi announced that the ECB may intervene in bond markets to fight the “unacceptable” high yields in some countries. He also said that the troubling issue of seniority will also be addressed  However, no action will happen immediately. The ECB will discuss it over the coming weeks and will examine models. Conditionality is necessary. So, the EUR/USD falls.

Draghi also talked about subdued growth and prospects of low inflation. After the ECB left the interest rates unchanged, we arrive to the main course of the highly anticipated D(raghi) Day: the press conference in which the ECB is expected to announce further steps. Among the many options that Mario Draghi has, immediate bond buying in the markets will be the most convincing one. Live blog of the press conference.

Summary:  Draghi Didn’t Deliver – Overestimated Spain and Underestimated Germany


  • Draghi announces operations in the markets, but this depends on internal ECB committee decisions that will take weeks.
  • EUR/USD falls sharply.
  • Intervention has no limit in the sum and could be unsterilized. Intervention will be on the short end of the curve.
  • Up to governments to give ESM banking license.
  • Bundesbank has reservations – it is out in the open.

It seems that Draghi was expecting a Spanish request before the event today. Without that, Draghi just made another big statement but didn’t provide action. High expectations led to a big disappointment.

Live Blog

12:00 GMT pre-conference  The press conference begins at 12:30. All times are GMT. You can watch the press conference here.

12:01  EUR/USD is trading a bit higher following the rate announcement, and is around 1.23. Resistance is at 1.2330.

12:04 Significant resistance is at 1.24, and significant support is at 1.2150, followed by the 2012 low of 1.2043.

12:05 Also US jobless claims will be published at 12:30 GMT. However, US events have been sidelined.

12:06  An anecdote: The popular German tabloid Bild announced that it will demand the Prussian helmet back if Draghi launches unorthodox policy.

12:07  Spain raised money in the markets earlier, but paid a high price, once again. Spain urgently needs action to lower its borrowing costs.

12:09 Italian PM Mario Monti is touring Europe and reportedly also trying to convince Spain to ask for a full bailout. This could be a prerequisite for ECB bond buying.

12:11 EUR/USD continuing its upwards move, breaking 1.2330 and hitting 1.2345. Did the ECB begin buying bonds? Or just wishful thinking by market participants?

12:14 In the US, the number of layoffs slightly dropped to 36,855 in July according to the Challenger. This is a minor indicator.

12:15 Presser due in 15 minutes, EUR/USD now relaxing and sliding a bit, still above 1.2330.

12:17 Spanish bond yields are still in high levels. No clear action from the ECB so far.

12:21 Some analysts estimate that bond buying would start during Draghi’s speech. Draghi’s predecessor, Trichet, did that once.

12:23 Draghi could disappoint, due to German opposition and other things.

12:25 Markets would like to see immediate action, and not promises. While Draghi has a lot of credibility, actions are always far stronger than words.

12:27 EUR/USD is now sliding to 1.2330.

Press Conference Begins

12:31 Draghi begins: Draghi talks about the rate decision and says that inflation should fall in 2013. Inflation expectations are firmly anchored.

12:32 Growth remains weak, says Draghi, but EUR/USD is strong.

12:33 Draghi reaches the important part: high yields are “unacceptable”. The euro is irreversible.  

12:34 Governments must activate ESM/EFSF. Consolidation takes time. Conditionality is necessary.

12:35 The ECB may undertake open market operations, address seniority.

12:35 Over the coming weeks, we will design models for doing it. Seniority will be addressed. But action is needed now! EUR/USD slides.

12:36 Growth will remain weak. Balance sheet adjustments will weigh on growth momentum. Cites global slowdown.

12:38 Monetary analysis confirms falling prices.

12:39 Fiscal consolidation has been serious, but more steps are needed in competitiveness.

12:40 EUR/USD noesdives from the peak of 1.24 to 1.2275. Wow!

12:42 Unit labor costs have undergone adjustments

Questions begin

12:44 EUR/USD stabilizes above 1.2260.

12:45 What about the grand master plan? Seniority? Draghi reads the statement – reforms and ESM / EFSF action are a prerequisite for ECB.

12:45 A rate cut was discussed.

12:46 The ECB cannot replace governments.

12:47 Concerns about seniority will be addressed, size of bond buys is “as  necessary”.

12:48 Will there be sterilization?

12:49 The effort will be focused on the shorter part of the yield curve.

12:50 EUR/USD falls to 1.2238.

12:51 It falls “squarely” within the ECB mandate.

12:52 It’s up to the governments to give the ESM a banking license.

12:53 Spain has achieved progress on fiscal consolidation. It’s up to these countries to decide if they want help from the EFSF / ESM.

12:54 Did Draghi wait for a Spanish aid request to act today? EUR/USD continues its dive, hitting 1.22 – a 200 pips plunge from the peak.

12:55 Bond buys could be unsterilized as well.

12:56 Decision to support the euro has been unanimous, but Weidmann had reservations.

12:57 ECB committees will discuss the options and the “votes will be counted”.

12:58 EUR/USD stabilizes but Spanish bonds are still hit.

13:00 The current design disallows banking license to ESM.

13:04 Last week’s words were not surprising to ECB members.

13:06 The trigger for action was the rise in short term yields, usually an ominous sign, says Draghi.

13:07 “We don’t act under terror”.

13:08 “It was not a decision, but only a guidance” clarifies Draghi – that’s the gist of the problem. It was unanimous with one reservation.

13:10 The ECB “may” act – this is not final.

13:11 Regarding Greece, the profits were “earmarked” for redistribution. He awaits the results of the troika visit. Will he enable the Greek option?

13:13 Draghi emphasizes that he acts within the mandate.

13:14 EUR/USD stabilizes around 1.2210 after plunging to 1.2172 earlier.

13:15 ESM and EFSF usage are necessary for ECB action repeats Draghi.

13:17 The ECB may act if governments act first.

13:19 The ECB remains a guardian of price stability.

13:20 We are proud of our own independence.

13:21  Why focus on the short end? Answer: Shorter term is closer to money market operations. “We wanted to restrict it to classical monetary policy”.

13:23 Draghi – the London speech didn’t directly commit to bond buying. This is in response to criticism of increasing expectations.

13:25 EUR/USD slides again, at 1.2180.

13:26 We see a convertibility premium in some interest rates.

13:28 “Pointless to short the euro” and “the euro is irreversible”. – the market doesn’t think so – EUR/USD remains low…

13:31 “I’m quite happy about these remarks”, Draghi concludes.

Press conference ends.


Draghi set very high expectations in a speech last Thursday, when he vowed to save the euro and added “believe me, it will be enough”.

The most desired move is bond buying to lower the yields of Spain and Italy. There are quite a few forms of doing this, with full QE being the most decisive. Here is the latest preview, with all 8 options.  The rate cut(s) option didn’t happen.

Central banks in the US and the UK didn’t change policy.

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.