Home Why the ECB’s taper talk should be faded

Why the ECB’s taper talk should be faded

Reports that the ECB will taper bond buys before completely halting the program moved the slow-mo EUR/USD. A jump of around 100 pips was seen, from the abyss of 1.1140, close to the 1.1120 support line, all the way up to 1.1240. However, this didn’t last too long and the pair is hugging its beloved 1.12 level once again.

While any move in the pair is a blessing, the taper-talk seems to be a fade.

What’s in the report? Here is the opening quote from the Bloomberg article:

The European Central Bank will probably gradually wind down bond purchases before the conclusion of quantitative easing, and may do so in steps of 10 billion euros ($11.2 billion) a month, according to euro-zone central-bank officials.

So, is the ECB about to announce the beginning of the end of its 80 billion bond-buying scheme? The program runs through March 2017 and markets assumed it would be extended and somewhat tweaked.

If the ECB begins tapering in March and eventually ends the program, this is a bullish shift and that’s why EUR/USD jumped.

But, tapering does not necessarily have to begin in March. This quote is from the second paragraph:

They didn’t exclude that QE could still be extended past the current end-date of March 2017

So, perhaps the talk about tapering is only a general description? The Fed also tapered down its program before completely ending it. The ECB followed their peers across the pond in various occasions. This may be another one of those, but perhaps not so fast.

The ECB is not nearing its inflation target of “2% or a bit below”.  Recent data showed headline inflation rising, but to a meager 0.4%. Core inflation is not going anywhere fast. At 0.8%, it seems that  Draghi’s problems are not limited to oil prices.

Here is the move on the chart. After getting closer to support, the pair escaped this level. But, it never went too far.

More:  EUR/USD parity in 12 months – Goldman Sachs


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.