ForexLive US wrap: Draghi squelches bond-buying hopes

Written by Jamie Coleman
December 8, 2011 at 21:43 GMT

• ECB cuts refi rate 25 bp, extends bank-lending to 3-year term, widens types of securities acceptable as collateral
• Draghi says he did not signal to EU Parliament last week that he would buy bonds if EU stiffened fiscal rules
• Draghi says must respect spirit of law which prevents ECB lending to governments; that includes lending to the IMF, ECB is not an IMF member
• US weekly jobless claims fall to 381,000, lowest since September 2008
• US wholesale inventories rose 1.6% in October
• EBA: European banks need to raise total of EUR 115 bln in fresh capital 
• EU and IMF to make joint mission to Hungary on Monday; may lead to aid package
• Austrian FinMin: Chances of EU-27 Treaty change “not good”
• EU draft suggests banking license to be granted to ESM, sparks EUR/USD rally
• Germany immediately denies ESM banking license will be allowed
• S&P 500 falls 2.1% to 1234; Milan falls
• US 10-year note falls 0.6 bp in yield to 1.97%; Italian yields spike 46 bp to 6.53%
• WTI falls $2.40 to $98.07; gold slides $33 to $1708

What a day. EUR/USD opened in NY in the 1.3380. It spiked to 1.3460, just far enough to trigger some weak stops, after very upbeat weekly jobless claims before sliding sharply a short while later as new ECB chief Draghi did his best Bundesbanker imitation and stated that he had not signaled a willingness to rescue the euro zone bond market if the EU got its fiscal house in order. He also denied that the ECB or national central banks would lend to the IMF so as to evade laws prohibiting the ECB from monetizing government debt.
Hopes for a two-pronged attack on the sovereign debt crisis (ECB and EU) were dashed, leaving the summiteers in Brussels all alone to come up with a solution. Few expect a quick resolution to come via political channels.
EUR/USD dipped as low as 1.3289 before steadying. We began to drift higher on short-covering in late afternoon, finally triggering stops above 1.3350 up to 1.3375 after it was reported that an EU draft statement said the ESM would be granted a banking license (something Germany has adamantly opposed) as well as being brought forward to run simultaneously with the EFSF for year.
Germany swiftly rejected that they would accept those provisions, sending EUR/USD slumping back into the 1.3330s. We end in the 1.3345 region.
AUD/USD was violently whipsawed during the US session, breaking through stops at 1.0330/40 level and spiking to 1.0377 after the US jobless claims data. It fell out of bed as the ECB threw cold-water on the idea of a bond-buying spree. We fell as low as 1.0146 late in the day. Some stops were triggered on the 1.0150 break. More are seen in the 1.0225/40 area.