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Talking Points:

  • The Euro was little changed versus it’s major currency counterparts
  • Targeted LTRO at 18.3B, above the prior 15.5B
  • FED and risk sentiment are the major market forces at the moment

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The Euro was little changed (at the time this report was written) versus its major currency counterparts after today’s Targeted LTRO showed an increase in demand by Euro-Zone banks for TLTRO’s. 55 Euro-Zone banks bid 18.3B Euros for the low interest rate loans, with the prior figure in September lower at 15.5B Euros. LTROs provide long term refinancing by the ECB to the financial sector by offering liquidity to banks. The “T”, as in targeted, means that these loans are granted to banks on the condition that they are lent to the real economy, which usually leads to lower long-term interest rates.

With the ECB having shifted away from the less-impactful TLTROs towards the heavier-handed QE, as evidenced once more in the latest ECB policy decision, today’s news release about the latest TLTRO allotment might have been perceived as good news. But given the fact that we are rapidly approaching the Fed rate decision on Wednesday, in which the central bank is likely to announce its first interest rate hike in over a decade, it seems that the market is firmly focusing on the ‘rates versus risk trend’ question going into next week. Given the Euro’s tentative status as a funding currency, it should be impacted by how equity markets respond to the Fed’s liftoff. As such, the positive but still minor TLTRO allotment news has been all but overlooked in favor of the more significant macro event risk around the corner.

DailyFX Chief Currency Strategist John Kicklighter, recently emphasized that the Fed Rate Decision can spark volatility coming into the end of the year.

Euro Little Changed After Sixth TLTRO Allotment Shows Demand Rose

original source
DailyFX – Alerts

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