That’s exactly what happened with the first LTRO by the ECB: markets cheered and the euro rose on the news of the large operation. This didn’t last too long though.
European banks will get a lot of much-needed cash. The celebration will likely be short lived.
EUR/USD is under 1.35 before the operation. To be more precise, 1.3486 capped the pair twice: once on Friday and once now. A breach of this line has high chances, with next resistance at 1.3550.
Nevertheless, it could certainly turn into a “buy the rumor, sell the fact” event, as the LTRO isn’t a surprising event.
Minor support is at 1.3430, with more serious support at 1.3333. For more, see the euro to dollar forecast.
Size matters? It’s complicated in this case
Estimates regarding the size of the second Long Term Refinancing Operation range from 300 billion euros to 1 trillion, with the average around 500 billion. The first operation was around €489 billion.
The actual sum matters less, as any outcome can be interpreted in both ways: a large sum can be seen as a great success, meaning that banks are prepared for any shock. But, it also goes to show that they are reliant on the ECB.
A small sum can show that the banks are already better off and need less cash, while it can also cast worries about the readiness.
What matters more is that banks are prepared for an outright full hard default by Greece. The leaders could set the breaks loose on Greece after banks have more cash.
The results will be released at 10:15 GMT.Get the 5 most predictable currency pairs