EUR/USD

EUR/USD: The EUR/USD is trading at 1.1075 this morning ahead of ECB's meeting today. On late Wed, the pair hit 1.106 at one point, making new lows since Sep ’03.

This is a reflection of the divergent policies between the Fed’s plan to raise interest rates this year, and ECB’s ambitious €1.1t quantitative easing programme. For the first time ever, the ECB will buy both public and private debt from the secondary market, freeing up liquidity for banks to lend to businesses.

Market watchers will scrutinize the following details of the asset purchase scheme:
1) Actual commencement of bond-buying. ECB has guided that it will start in the first two weeks of March

2) Flexibility on the types of bonds that can be purchased, and at what prices

3) Definition of “sustained adjustment”. ECB indicated that purchases will continue until a “sustained adjustment in the path of inflation” towards slightly below 2% target. Some opine 2017 inflation targets could provide clues on whether the QE program would be extended.

4) ECB’s assessment of the economy. Economic forecasts will provide insights on the impact of cheap oil on the Eurozone economy

5) Clues on the reinstatement of Greek bonds as valid collateral. Junk bonds are not valid collateral for ECB loans. An exemption was made for Greek government bonds, until that was suspended last month

Market watchers seeking to capitalize the declining EUR/USD can consider a position on the ProShares UltraShort Euro (NYSE Arca: EUO). A long position in this ETF will effectively yield a return equivalent to a 2x short position on the EUR/USD, before fees.