European markets scream higher

It didn’t take long for investors to understand that more stimulus than expected following Thursday’s European Central Bank meeting was likely to reset the tone. So much for the recent plunge in oil prices and how it gave global stock markets a bearish tinge to start the year. All that is in the past after Mario Draghi and his team in Frankfurt cut the region’s marginal, main and deposit rates of interest, enlarged the value of bonds in its asset purchase program and expanded its reach to include investment grade corporate bonds.

Stocks across the Eurozone reached for the sky on this news. The Euro Stoxx index is up by 3.1% while key German, French and Italian bourses are up almost as much. The euro currency was immediately pummeled by speculators, but failed to breach recent support at around $1.0800, with investors anxious to hear what Draghi might reveal at the press conference. The single currency has weakened in the run up to the meeting on the expectation that fresh easing was forthcoming.

However, despite the multiple rate reductions and expansion of asset purchases beyond those of most forecasters, the market does not seem to have an appetite to challenge the late November lows above $1.0500. Remember that we have seen bigger moves on lesser stimulus measures before now. I wonder how long it will be before euro-haters tire of waiting for a further test to the downside.

Euro currency spiked lower on stimulus measures, but looks far from sick

About the Author

Andrew Wilkinson is senior market analyst at Interactive Brokers Group. He is a seasoned trader and commentator of global financial markets.