After got slapped 0.71% yesterday, the final day of the week is expected to be better. The Dow soared over 200 points, thanks to Mario Draghi's comment on ECB's commitment to defend the euro.
The ECB president said that the central bank will do whatever it takes to defend the single currency. Here's what he said:
"Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough,"
and...
"To the extent that the size of the sovereign premia (borrowing costs) hamper the functioning of the monetary policy transmission channels, they come within our mandate,"
Coupled with the words from ECB's governing council member Ewald Nowotny earlier it could be expected that the ECB would finally agree to give the ESM its banking license which will open up the ECB's lending facility directly. Afterwards, the ECB could kickstart new rounds of purchases of Spanish and Italian debts.
Sure, this could work... for a while. But for how long? Europe's problem is more on the fiscal side, not the monetary side. While the markets are buying the ECB chief's words, as time goes by the effectiveness of such ECB actions will be questioned again.
Nevertheless, for now the markets cheer the news and at the moment the JCI soared over 50 points up. Yet again, from the technical perspective, we're not out of the woods yet.
Written by Unknown
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