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The ECB has  set  a historic negative deposit rate and announced a series of measures to stimulate the economy and push inflation higher.

The high value of the euro keeps inflation and growth depressed and Draghi made explicit comments tying the exchange rate to monetary policy. Nevertheless, at 1.3650, EUR/USD is basically at the top of the same range that characterized also towards the decision.

The one thing that might have kept the euro strong was that Draghi basically closed the door to more rate cuts, by tweaking forward guidance. That seemed like a serious mistake.


However, in the weeks that followed, ECB members have  re-opened this option. And if this was not enough, Draghi made clear that the current ultra low rate will remain low until the end of 2016 – for 2.5 years from now.

“We have prolonged banks’ access to unlimited liquidity up to the end of 2016. That is a signal,”

That makes him more dovish than Yellen: US rates are expected to rise by Q3 2015, the latest –  the maximum time rates will remain low in the US precedes the minimum time they will stay low in Europe by over a year.

Euro outflows

So, one of the factors  keeping the euro bid and pushing it higher was an influx of money into European bonds and stocks, basically a long reaction to Draghi’s OMT backstop back in 2012.

Yet also here, the tide has turned: Bank of America reports that there were outflows of $1.6 billion from European stocks last week, the highest in over a year.

So, where is the fall?  

Perhaps with the recent low volatility in markets, we may be experiencing the calm before the storm.

For more, see the EURUSD forecast.