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Mario Draghi, the president of the European Central Bank, communicated calm and satisfaction with the central bank’s LTRO program. He claimed that it stabilized the system, and the message was felt at EUR/USD.

Draghi also provided an initial hint of a bigger role for the ECB in the Greek crisis.


  • LTRO helped stop the credit contraction.
  • Downside risks to growth.
  • Inflation will ease.
  • Encourages fiscal consolidation and quick signing of fiscal compact.
  • Confidence hasn’t been restored yet.
  • Didn’t deny a haircut for the ECB on Greece.
  • EUR/USD rose from 1.2720 at the trough to 1.28 at the end of the press conference. This is also thanks to short covering.

Live Blog

13:10 GMT pre-conference. EUR/USD is edging down from the 1.2760 line. All times are GMT.

13:18 One of weights on the euro is the situation in Greece, which is getting further away from a haircut deal with banks and getting closer to default. On the other hand, the larger countries, Italy and Spain, had successful bond auctions earlier in the day. Perhaps thanks to the LTRO operation –  a result of last month’s ECB decisions.

13:23 EUR/USD ticks lower. Note that there are significant US releases coming up – retail sales and jobless claims, just as Draghi is expected to start.

13:30 Press conference begins.

13:31 Inflation is likely to remain high for several months before declining. Financial stress dampens activity. Signs of stability. Downside risks and high uncertainty.

13:32  A very thorough analysis of data is warranted.

13:33 LTRO – The first operation had substantial contribution to bank stability. Working towards providing additional support to the economy.

13:34 Real GDP is hardly growing due to low global demand and consumer lack of confidence. Financial crisis weighs on economy.

13:35 Danger of “disorderly correction of imbalances”.

13:36 Energy prices pushed inflation higher. Inflation is expected to drop. Inflation should remain modest.

13:37 Inflation risks remain balanced.Risks come from growth.

13:37 Financial markets cause risk and spill to real  economy.

13:38 Credit effects “can manifest themselves with a lag”. Bank  recapitalization  should not hurt the economy.

13:39 Signs of stabilization- what does it mean? Fiscal consolidation must replaces slippages swiftly.

13:40 EUR/USD at 1.2720. ECB welcomes new “fiscal compact” – no debts by law agreed in the recent EU Summit.

13:42  Welcomes the reaffirmation of the Greek debt decisions – Greek haircuts are unique. Calls for bold structural reforms.

13:43 More competition, less labor  rigidity.

13:44 Questions begin – decision and discussion were unanimous. No comment on exchange rates – quotes old communique.

13:45 EUR/USD at 1.2733, very stable. Question about LTRO. Draghi says it has been effective.

13:46 In the meantime, US retail sales rise by only 0.1%. Core sales drop by 0.2%. Jobless claims jump to 399K – very bad.

13:47 Draghi praises LTRO operations. EUR/USD rising to 1.2747.

13:48 Banks that borrowed money from the ECB are not the ones depositing money with the ECB.

13:50 The LTRO decision prevented a “serious credit contraction” (credit crunch).

13:51 There are places were the credit contraction was visible and the LTRO prevented more trouble (collapse?)

13:52  We are witnessing that stressed countries are making progress in fiscal consolidation.

13:53 To mitigate fiscal contraction, one must take structural reforms, and then confidence will come. A steady and fast move will help. Very conservative central banking.

13:54 It would be better that the fiscal compact would be signed this month.

13:55 The ECB will act as an agent for the EFSF. We are close to sign the agency agreement with the EFSF. They have different tasks.

13:56 Confidence in the crisis management – significant downside risks and high uncertainty but some stability at low levels. It’s hard to express confidence.

13:58 There are countries that live through the crisis with low growth and without recession. Others have an incoming recession.

13:59 Re: Greek PSI – more is needed – the debt sustainability management is quite complex. One thing is clear: Greece needs to bring its house together and move forward on fiscal consolidation front.

14:00 On rates – we never pre-committ.

14:01 No news on Greece. Regarding Hildebrand, “we all regret” the loss of a central bank governor.

14:02 We have a good “code of ethics”.

14:03 Italian reporter: why are Italian yields still so high? Answer: “The markets are  appreciating the actions”. Weird but EUR/USD is appreciating to 1.2766.

14:04 What about “tailor made QE for the euro-zone” look like? Draghi “doesn’t know”. He is avoiding any possible hint.

14:06  Will the ECB stop buying government bonds? The goal is “unclogging of monetary  transmission  policy channels”. Markets are stuck.

14:08 Very concerned about Hungary – regarding limiting the central bank independence. The European Commission is looking into this issue.

14:09  EUR/USD is rising above 1.2770. Q: Will the ECB take a hit on Greece? Reluctant to comment on PSI. It is clear – there is no amount of sufficient relief if no fiscal consolidation is in place. Draghi doesn’t deny a haircut for the ECB.

14:10 Regarding combining the ESM and EFSF – the firewall must be fully equipped. Anything the governments will do, will help.

14:12 Will rates remain unchanged? What about the ECB’s own bond holdings?  Once again, no denial of such a move.

14:13 Re:rates – we never pre-commit. Uncertainty is very high and he doesn’t say anything substantial.

14:14 VP Constancio says that PSI is Private Sector Involvement, not public. Nevertheless, he doesn’t deny that the ECB will take a hit.

14:18 Has high expectations for next LTRO.

14:22 They say that Greece is unique” – Is Draghi really confident?

14:25 Regarding PSI once again – was PSI a mistake?

14:28 Regarding Spanish measures, Draghi refuses to comment, but generally approves of them…

14:30 Banks will enjoy the loose collateral rules for the next LTRO. Indirect QE.

14:31 Press conference ends. Wrap up coming soon. EUR/USD at 1.28.


After two rate cuts, the ECB decided not to move on the rates. Besides having inflation at 2.8%, the ECB has reached the minimum level of the Minimum Bid Rate since the financial crisis broke out.

In addition, Draghi is in office only since November, and he oversaw two rate cuts in two meetings. A pause was probably necessary also to appease the inflation hawks in Germany.

Draghi is not expected to provide more unconventional measures after he introduced 3 year LTRO operations last time.  Nevertheless, the markets are still expecting something, and the euro may fall if Draghi doesn’t do anything.

These loans provide banks with cheap money for three years. Draghi already introduced two operations last month. A first one was conducted at 489 billion euros. While it may have stabilized the banks, it didn’t really help in fighting the sovereign debt crisis.

Strong support is at 1.2660 followed by 1.2587. Resistance is at 1.2760, with a much more serious cap at 1.2873. For more, see the EUR/USD forecast.

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