-Yves Mersch, ECB Executive Board member
The most traded currency pair closed below the important support level at 1.36, while market indicators also turned bearish. Policymakers and European officials made it clear that next week we will see a massive sell-off in the Euro. It will be the 380-million European electorate versus the six members of the central bank plus the governing council. A move below strong barrier already indicates that traders are pricing in more than just a shift in the rate corridor. It is clear now that the market psychology and positioning has changed radically over the last few days.
The last but not least confirmation of the upcoming action came from the ECB Executive Board member Yves Mersch. He claimed the central bank can offer a combination of policies to fight persistently low inflation and low credit growth, while also mentioning that the timing of the implementation can vary. When answering reporters' question, Mersch said there is a possibility all three rates will be revised, as the so-called corridor should be maintained, because otherwise it can harm interbank markets. While he sees no risk of deflation in the region, the ECB is prepared for this contingency just in case. The most probable scenario for the ECB is a revision of all three benchmark rates, including the main refinancing rate, the deposit rate and the marginal lending rate. Due to political disputes and elections, the announcement of the U.S.-style quantitative easing programme is unlikely.
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