ECB's TLTRO: what to expect?
On Thursday the market attention will be glued to the 2nd operation of the ECB’s Targeted Longer-Term Refinancing Operations (TLTRO). The results will be announced today at 10:15 GMT. How could the event influence EUR/USD?
Firstly, I’d like to note that TLTRO is expected to strongly contribute to the ECB balance sheet growth. That’s why the second operation will show whether the current stimulating measures are capable to boost the ECB’s balance by 1 trillion euros or not.
The outcome of the first operation was rather disappointing as the European banks borrowed only 83 billion euros out of possible 400 billion for two auctions. Low demand today will be a strong negative factor for the EUR as the chances for a massive asset purchases early next year will rocket. The powerful support of 1.200 will clearly be broken.
A take-up below 200 billion euros will be seen as insufficient. Figure above 200 billion euros would lower QE expectations and provoke a relief growth in EUR/USD. The pair could recover towards the 1.2900 resistance in the coming weeks than.
Chart. Daily EUR/USD