In EUR-USD something seems akin to the correction of the correction which ended the downtrend in EUR-USD in mid-April. Yesterday EUR-USD eased from levels just above 1.1300 to below 1.1150. This was caused by ECB Executive Council member Benoît Coeuré who announced that the ECB was going to bring forward some of the bond purchases for the summer into May and June to avoid the liquidity lull in the summer. It had been the ECB’s intention to reduce market uncertainty with a particularly clear communication strategy – and it failed impressively! The announcement was intended to avoid speculation about an extension of the €QE programme should markets notice the increased ECB demand for government bonds over the coming weeks. As the overall volume of the QE programme is not changing the market should have largely ignored Coeuré’s reference. But not so! The strong revaluation of the euro illustrates the market interpreted the comments to mean more. “However, it is absurd to suggest the ECB’s claim of bringing forward the purchases to disguise an increase in the programme. Why would the ECB do that? A much stronger signal would be for it to officially ease its monetary policy. The stronger euro since April and the volatility on the bond market do not suffice as an explanation as both could be contravened more effectively with the transparent communication of a more expansionary monetary policy” says Commerzbank.
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