Euro/dollar hit high resistance after the ECB published its bond buying figures. While the figures reflect its massive activity in the markets, all the money is going to be drained out.
So, the ECB is fighting the debt crisis without printing money – exactly the recipe for a stronger euro. Will it break this line?
The ECB enlarged its bond buying program by 22 billion euros, or 22% to 96 billion. This shows the large effort to lower the bond yields of Spain and Italy made last week and probably still continues. This effort succeeded, with yields standing at 5% for both countries.
Economists had expected bond buying of a smaller scale, 10 to 15 billion euros. But the important part is that this money will be drained out of the markets, exactly the same way as the previous purchases Greek, Portuguese and Irish bonds were drained out.
This means that the ECB isn’t pumping money into the markets. No euro printing is positive for the currency, but may not work in the long run.
It’s still to be seen if the ECB will be able to drain out the money. It will probably succeed this time, but as the scheme grows, it will become harder.
EUR/USD is now at 1.4450 – a tough resistance line.If it breaks higher, the next lines are 1.4550 and 1.4650. Support is at 1.44 and 1.4325.
For more on EUR/USD, see the euro dollar forecast.
French president Nicolas Sarkozy and German chancellor Angela Merkel will meet in Paris to discuss European governance and perhaps eurobonds.
Trichet rejects any form of QE, and perhaps wishes to transfer the bonds to the EFSF once it has the legitimacy to act. In the meantime, Euro-zone QE has landed, but at this level of bond buying, it isn’t too far away.