Low interest rates and a massive level of liquidity seem sto be the name of the game for Central Bankers across the globe, and especially from the developed market space.
The European Central Bank (ECB), Bank of England, Bank of Japan and the Federal Reserve, all seem to be determined to keep printing money and undertake expansionary monetary and fiscal policies to give economic growth a head start in their troubled economies (see Malaysia ETF Surges on Election Result).
In this liquidity driven low interest rate environment, it is very important for currency traders to keep a keen eye on the monetary policies across the globe as this can have tremendous consequences on these currency pairs.
In this regard, a mention of the key personnel of Central Banks across the globe is worthwhile as they have pretty much been the ultimate sources driving market sentiments. While Ben Bernanke and his policy statements and actions have pretty much been responsible for the market uptrend in the U.S., Mario Draghi is easily the key person as far as Europe is concerned (read Bet on the Euro with These 3 ETFs).
Draghi’s statements and policy actions have been instrumental in shaping the European markets for quite some time. While the interest rates across many of the troubled PIIGS nations have decreased substantially, European equities have taken cues from most of the developed market counterparts and pretty much been on a solid uptrend.
Nevertheless, in Monday’s trading session, the Euro experienced extremely volatile trading following Mario Draghi’s statement which symbolizes willingness to slash interest rates further if the situation demanded (see Base Metal ETFs Soar on Strong Data).
Consequently, what was building up to a pretty subdued trading session for the CurrencyShares Euro ETF (FXE), turned out to be an extremely volatile one for the ETF.
FXE closed the day to finish at $129.58 down -0.31% for the day. The following chart depicts the intraday trading action for the Euro ETF and the subsequent drop following Mario Draghi’s comments.
Although this event-driven phenomenon might seem to be a disturbing one for most investors seeking an exposure to the Euro ETF, there is hardly any reason to worry going forward (see Has the Euro ETF Bottomed Out?).
The ECB and its policy measures have been able to inflict some sort of stability in the Eurozone after a disastrous 2011. And going forward, this trend is most likely to continue.
Not to mention, that the Euro is already trading at depressed levels thanks to the loose fiscal policies undertaken by the ECB. Therefore a further downside seems less likely, at least at this point in time.
Still, investors in this foreign currency ETF should pay close attention to any more comments from the ECB chairman going forward. These comments clearly have the ability to drive the markets, and could result in increased volatility in the weeks and months ahead.
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