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Dec 2 2014, 11.35am GMT


The ECB bond buying scheme started last week with the purchase of 368 million euros, but there may be a problem with buying more.

Mario Draghi’s programme of bond buying to push the recovery of the European Union and decrease the potential of deflation started on a slow drip, but on Thursday this week the European Central Bank will meet to discuss its latest policy decisions.

With at least 2 members of the governing council remaining unconvinced regarding the government bond-buying scheme, Thursday’s meeting may see Draghi appealing for the QE stimulus or waiting until next year. However, the drop in oil prices may benefit Draghi’s argument as it also affects world banks with many analysts believing that low energy prices will put downward pressure on inflation worldwide, giving central banks the opportunity to loosen up monetary policy.  

The ECB scheme to buy asset-backed securities began on November 21, alongside the purchase of covered bonds and the offer of new loans to banks, all part of the plan for the ECB to increase the size of its balance sheet to 1 trillion euros, a level last seen in early 2012. But existing repayments of long-term funds totaling 300 billion euros due to be paid early 2015 may see the balance shrink.

The EURUSD slid further on the anticipation of this week’s meeting and on recent European data: German Manufacturing PMI (Nov) fell below the contraction point of 50 to 49.5 when 50.0 was expected. And though the UK Manufacturing PMI (Nov) reached 53.5, above the forecast of 53.1 and the previous of 53.2, the overall EU Manufacturing PMI (Nov) of 50.1 did not hit expectations of 50.4.

The German30 [DAX] saw a slight jump only to retreat over the day, up to 10032.38 then down to 9919.00, as investors wait to see which path the ECB favours.

MT4 chart: EURUSD

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MT4 chart: German30 [DAX]

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