How to Trade on the European Central Bank Bond Buy
ECB President Mario Draghi has finally announced a bond buying plan, and now the experts are weighing in.
Well that was exciting! After weeks of anticipation, and a fair number of news leaks, European Central Bank President Mario Draghi announced a bond buying plan aimed at shoring up the euro (and of course preserving price stability.) Currency markets reacted instantly - with a shrug.
"It was spot on what the market was expecting. No surprise and I have a strong feeling the ECB did not want to surprise," Steven Englander, global head of G10 FX strategy at Citigroup , told me.
"The ECB took another, positive step today," says Rebecca Patterson, chief investment officer of Bessemer Trust. "The world 'feels better.'" But that's today. "My bottom line: 'Enjoy it while it lasts,'" she told me.
Patterson argues that while the ECB did take the plunge and wade into a program aimed at shoring up weak euro zone countries, she "was equally struck by how much the ECB 'conceded' to the German 'camp.'" The rules could make it hard for a country to receive aid when it fails to meet its budget targets - an element that may well have been promoted by the austerity-minded Germans - but Patterson argues that that's when a country is most likely to need aid. "With slowing growth in Europe, isn't that just a matter of time?" she asks.
That said, the market mood is risk-on for now, with the yen under pressure. So Patterson suggests "buying the EUR vs JPY or CAD vs JPY," with two caveats: U.S. nonfarm payroll data is coming, as is Canadian jobs data. "With the good weekly jobless claims, services ISM jobs number and ADP report, market expectations will probably be higher by Friday morning," she told me, so watch out for potential payroll disappointments.
Andrew Busch, global currency and public policy strategist at BMO Capital Markets, told me he has recommended that investors tighten their stops to 1.2675 on a short euro trade he recommended entering at 1.2625. "I don't like the price action from here," he says. "Overall, I see lots of potential movement for the EUR ...but I see it +/-3% around 1.2500."
Marc Chandler, chief currency strategist at Brown Brothers Harriman, is taking a longer view.
"The ECB's bond buying plan is in fact 'tantamount to financing governments' even if the monetary impact is sterilized," he wrote in a blog post entitled "Independent Central Banks? R.I.P."
On a positive note, Chandler notes that the dollar got a lift from today's better-than-expected employment report.
As Patterson says, enjoy it while it lasts.
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