Could ECB’s Latest Measures Impact Euro’s Performance?

June has generally been a chaotic month for the Euro, trading in ranges around and north of +/-4% versus its major counterparts. At first, it was the June European Central Bank policy meeting that startled investors into thinking a Eurozone debt crisis redux could be looming.

The Euro has reversed its losses on the day after details of the ECB’s anti-fragmentation measures were revealed. The rates of the EUR/JPY and EUR/GBP pairs are still in bullish breakout territory, while EUR/USD rates remain rangebound.

Then the ECB’s Governing Council had an emergency meeting less than a week later in order to calm down Eurozone sovereign bond markets. Like in the early- and mid-2010s, peripheral bond yields, particularly those in Greece and Italy, began to widen out rapidly versus their core (e.g. Dutch, French, and German) counterparts.

Details of how the ECB plans to prevent spreads from widening out again have now emerged. Based on conversations held with ECB policy officials at their annual conference in Sintra, Portugal, the ECB will take proceeds from maturing Dutch, French, and German debt and purchase Greek, Italian, Portuguese, and Spanish debt. Yes, the PIGS are back.

It is too early to judge whether or not the ECB’s plan will succeed. But for now, markets are taking the news softly. The Euro has reversed its losses on the session, erasing some of its losses over the past few days in process. It remains the case that EUR/JPY and EUR/GBP rates remain on the path of bullish breakouts, while EUR/USD rates continue to trade into the middle of a range carved out since late April.