Week in FX Europe – Draghi And Aso Have So Much In Common
On Thursday the Head of the European Central Bank issued a confusing statement. Draghi's remarks indicated that the ECB might cut its inflation projections as early as next month if the ‘single unit' continues to appreciate. The market was trading close to 1.36 before dropping two and a half cent. The markets are still trying to digest what actually took place. At the time, Draghi was not referring to current currency levels. His worries were focused on future appreciation.
However, in the mind of a currency trader, they associated a EUR's rise would weigh down on inflation which could imply further downside risks to an already vulnerable Euro-zone. They therefore created a strong link between the EUR's rise and future ECB policy.
Structurally, going into the meeting the EUR market was overbought, “buy the rumor, and sell the fact” set in motion an onslaught of EUR repositioning. Draghi's press conference happened to trigger a plethora of downside...
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