FXStreet (Barcelona) - Derek Halpenny, European Head of Currency Strategy at the Bank of Tokyo Mitsubishi UFJ, explains the cons against selling the euro.
"The euro ended higher in London from where it began with initial enthusiasm for the monetary policy announcements fading. As well as the QE disappointment mentioned above there are two other aspects that may make the market reluctant to sell the euro."
"Firstly, President Draghi stated that “for all practical purposes” rates in the euro-zone had reached the low bound. This took some of the impact away from taking the deposit rate into negative territory."
"Immediately after breaking the lower bound of zero percent, Draghi told the market that the lower bound has been reached. Secondly, the targeted LTRO comes with a charge of 10bps."
"Not much perhaps when you can fix out to 2018 but why would a healthy bank take these funds when you have unlimited funds available weekly for 10bps less? Also I read this morning that the ECB’s balance sheet will now start to expand."
"But lets not forget, we have LTRO I and II maturing in January and February with EUR 464bn still outstanding. These funds may effectively be rolled over but if take-up is less than the LTRO I and II maturing funds, then the ECB balance sheet will continue to shrink."