What Do You Mean You Don’t Get It?

“I am not sure I get what the ECB tries to convey with this,” said Deutsche Bank senior European economist Gilles Moec.

That was from Reuters. So is this:

The European Central Bank is ready to act to aid the euro zone economy if needed, while signs of market stabilization mean interest rates are becoming a more effective tool again, ECB chief Mario Draghi said on Tuesday.

told you so?

Interest rates on Sovereign bonds are currently contained, but they’ve been rising for about a month. I’d imagine the ECB wants to nip that in the bud if it can. And they certainly don’t want investors second-guessing their “fix.” 

Now the only thing we wait for is a drop in the price of the euro — it’s still hovering at levels that represent a logical topping point:


[Click the image above for a full-size chart of EUR/USD.]

It seems a bit obvious what the European Central Bank is trying to convey with Draghi’s most recent comments: the euro is likely to feel pressure from the ECB’s interest rate resolve. Now that the euro is moving on ECB rate maneuvers, Draghi can finally play the competitive devaluation card.

After all, the strong euro is the crux of the problem in the eurozone, right? (The answer is ‘Yes’ … fyi.)

The euro is making a new high today. So now that the great and powerful Draghi has spoken, what might hold up the euro?

The US dollar, I suppose.

More specifically, the US dollar’s weakness relative to the Japanese yen. The downward correction we’ve seen in USD/JPY since May 22nd has corresponded nicely with the 21-day, 4.3% rise in the euro:

So I guess the most immediate question is: has USD/JPY downside reached a stopping point?

Perhaps it has. That sure would fit nicely into this idea.

Even though I don’t think any revelations will come from the FOMC announcement tomorrow, it still could be a catalyst for a move like I describe above. Have fun …

 

-JR Crooks