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A not so impressive TLTRO auction: 129.84 billion euros. It is higher than the previous auction but  not impressive at all, to say the least. It puts the total TLTRO at around 212 billion euros, around half the 400 billion target. It is hard to imagine we will not see QE in January.

EUR/USD is sliding to 1.2417. Update: the move extends, but the reaction is gradual. Another update: EUR/USD rebounds after the initial move.

Analysis:

  • With total ABS < 20 billion and TLTRO concluding at 212 billion, ABS would need to pick up very fast…
  • ECB target is 1 trillion  expansion
  • That leaves 768 billion missing.
  • The ECB  already crowded out investors in the covered bonds market.
  • QE seems imminent

ECB member  Benoît CÅ“uré: The TLTRO take up in the second operation was within the ECB’s and market estimates and expectations.  We also see an increased number of participants and a balanced distribution of liquidity across countries.

EUR/USD now rising after the initial TLTRO dip. The ECB is happy with the bigger and wider tender, but the road to 1 trillion is just too long.

The TLTRO loans carry an interest rate of 0.15% and last 1379 days. The ECB had 306 bidders.

The second tender of the TLTRO was expected to raise around €150 billion according to a consensus of economists. The first tender in October raised only €82.6 billion. The figure today has a significant impact on the likelihood of QE: a  weak outcome raises the chances for action by the ECB in January, while a  higher number would allow the central bank to wait.

EUR/USD traded around 1.2440 towards the  publication. — more coming —

Here is the preview:  TLTRO: 3 scenarios for EUR/USD

In the recent rate decision, ECB President Mario Draghi offered a “wait and see” approach. On the other hand, he did say that QE does not require a unanimous vote and did shrug off legal worries regarding buying  sovereign bonds.

Simply put: if  the ECB launches QE, the euro falls. Otherwise, it rises.