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Jean-Claude Trichet said that the ECB is “monitoring very closely”, but immediately announced an LTRO plan to supply liquidity – pushing money to the markets. The ECB intervened in the markets, but at a very limited scale, apparently without touching Spanish and Italian bonds.

The best show in town for euro traders ended with a lower euro, and higher uncertainty. Here is a wrap up of the live blog.

Highlights:

  • Fresh liquidity: LTRO 6 months liquidity program announced – a response to the markets.
  • Hints of serious intervention Bond buying announced and happens during the conference – no details about the scale, but Italian yields fell.
  • But no real one: According to one reporter, only Portuguese and Irish bonds are bought – not enough. Italian yields are on the rise – a bad sign.
  • Rate expectations are unchanged – “monitoring very closely”, like last time, still elevated.
  • No full agreement on bond buying: Trichet was asked about the decision, and revealed that not everybody  favored  it.
  • Bonds back up: Italian yields are at 6.11%, Spanish yields at 6.20%. All in all, unchanged.
  • EUR/USD at support: The pair ends the conference at 1.4170, above the critical support line. It bounced off this line several times in the choppy

Earlier, the ECB left the rates unchanged as expected. The Minimum Bid Rate remains at 1.50%, after the hike made last month. Will Trichet address the debt crisis?

Background

Trichet officially has a single mandate – to keep prices stable, at 2% yearly inflation, or a little below. This may guide his code words, which are likely to be between “monitoring closely” and “monitoring very closely”. There are other options. See the ECB preview for more.

Yet the ECB has the power to buy bonds en-masse, lower the soaring Italian and Spanish yields and restore confidence. During one of his previous press conferences, the ECB was buying a lot of bonds. Will it happen now? The current powers of the bailout fund disable it from acting. Trichet is not limited. Will he become a super hero?

Live Blog

* All times are GMT.

12:15 pre-conference – EUR/USD is steady above support at 1.4220.

12:25 Italian bonds yields rise to 6.11%, Spanish ones are at 6.21%. They are higher than earlier in the day. Not a good sign.

12:30 Press conference begins:  Deceleration  in economic growth. Slow growth is expected.

12:32 “Monitoring Very Closely” -Euro is up -but next statement erases it.

12:34 LTRO Announced – supplying liquidity to the markets due to the extreme market conditions. – Intervention! Will begin on August 9th

12:35 EUR/USD falls on the  announcement  of liquidity. Pair at 1.42.

12:36 Strong growth in Q1 has slowed down. Moderate expansion is expected, especially exports.

12:41 Calls on troubled countries to improve their finances. EUR/USD at 1.4177.

12:44 Public debt ratios should fall – moves should be front loaded.

12:48 Questions begin: Will the ECB buy bonds? He points the reporters the weekly release of this data on Monday.

12:50 Trichet says ECB is never pre-committed on interest rates..

12:52  He refuses to talk about the scale of the SMP program…

12:53 EUR/USD is bouncing off support at 1.4160 and flying back to 1.42.

12:55 Trichet says that it is the  responsibility  of the governments to take care of the financial crisis. Euro falls again.

12:57 The ECB will guide the EFSF. Trichet points the finger to the governments again.

12:59 Question: What do you think about the market moves? Answer: “We have observed tendency of a liquidity issue .. absence of smooth market  functioning” – Trichet was  hesitating  with the answer.

13:00 Trichet says that by the end of the conference, things will happen in the markets – Euro is slightly up, bonds yields hardly changed.

13:01 Question: Is the ECB out of sync? No. I don’t comment on other central banks – only one needle in the the compass.

13:03 Bond yields are moving lower – the ECB took action.

13:04 EUR/USD is moving higher on an intervention of the ECB in the markets.

13:07 Decision on monetary policy was unanimous – this means that the bond buying was NOT agreed by everybody.

13:10 No European quantitative  easing only liquidity providing.

13:11 Hints that QE can created damage in the long term, and that the ECB strictly separates monetary and other policy.

13:13 Asked about moral hazard, Trichet says that the governments have to be ahead of the curve.

13:17 Italian yields are stable around 6%, Spanish at 6.17%,  EUR/USD at 1.4225.

13:18 Q: Is Italy ahead of the curve? Trichet says that structural reforms are necessary and front loading of debt cut is also necessary.

13:20 EUR/USD renews its falls, falling below 1.42. Trichet says it is urgent for Italy.

13:21  Will Italy bail out of the next Greek bailout tranche? Trichet says he doesn’t know, and that it would be an “extraordinary thing”.

13:24 According to one reporter, only Portuguese and Irish bonds are bought, no Italian bonds. Trichet refuses to answer.

13:26 Euro deepens falls after this comments. Italian and Spanish yields are unchanged at 6%. Spanish bonds are at 6.15%.

13:27 NOT  unanimous  on bond purchases, but overwhelming majority on it.

13:29 Italian yields are back to 6.06%. EUR/USD is at support above 1.4160.

13:31 Trichet is not in favor of the Japanese intervention.

13:33 Trichet insists that the decisions made in Brussels should be implemented fully and rapidly, and this would prevent an intervention by the ECB.

13:34 Press conference ended. Wrap up coming soon —

In the meantime in the US, weekly jobless claims were 400K. Last week’s report was marginally revised to 401K – it is stabilizing lower.

For more about the EUR/USD, see the euro dollar forecast.

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