Forex Flash: High LTRO repayment figures due to falling TARGET2 balances - Commerzbank

FXstreet.com (Barcelona) - Commerzbank analysts say that the FX market hasn't priced in any further steps towards ending the crisis besides of the OMT announcement last autumn. In regard to Friday's announcement of the first week's 3-year LTRO repayment, of EUR 137bn, investors were surprised by the high figure as the timing decision of the banks was more aggressive than might have been expected, but the process itself is hardly surprising though: "The falling TARGET2 balances of the national central banks have been suggesting since the autumn that ECB liquidity is no longer required to the same extent as was the case in mid-2012. The return of voluntary capital flows to the periphery means that the ECB is less in demand to fill the gaps left by the withdrawal of capital", wrote analyst Ulrich Leuchtmann, pointing to returning capital reflected in the repayment of LTRO liquidity as a result.

Given the general picture of a robust uptrend in EUR-USD, further news (for example the country distribution of the LTRO repayments) might cause more EUR-USD jumps.