The European Central Bank reported today that 365 European banks will repay 61.1 billion Euros of the initial payment for the second 3-year LTRO loan. The announcement was about half of the 122.5 billion Euro repayment that was expected by economists, and therefore the Euro tumbled below 1.3200 against the US Dollar following the announcement.
The ECB gave out a trillion Euros of loans a year ago, and banks began repaying the first of these loans only a few weeks ago, when the period of allowed early repayments began. Today, the ECB also announced that 1.74 billion Euros of that first 3-year loan will also be repaid next week.
The early repayments of the loans are seen as signs of financial stability, therefore the Euro tends to rise when repayments exceed expectations. However, there is also a secondary effect of shrinking the ECB’s balance sheet as these loans are repaid early, which has the potential of being Euro negative.
Earlier in the session, the Euro did not sustain any major deviations from the 1.3200 level despite a final estimate of German GDP, a better than expected German IFO business survey, and a cut to the EU forecast for Euro-zone growth. EUR/USD is trading slightly above a monthly low set today at 1.3156, and the next support might be seen by a 2-month low around 1.3055.
Following the EU forecast release, EU European Commissioner for Economic and Monetary Affairs Rehn said that despite the disappointing hard data, the soft data in the forecast was more encouraging. He was likely referring to predictions of an upcoming recovery. Rehn further said that fiscal deadlines can be extended if growth falls short.
Also today, ECB’s Coene and Hansson both said they don’t see a problem with the Euro at the current level. ECB’s Coeure said the ECB should always have the next exit possibility in mind, but now is not the time for an exit.
EURUSD Daily: February 22, 2013
Chart created by Benjamin Spier using Marketscope 2.0
— Written by Benjamin Spier, DailyFX Research. Feedback can be sent to bbspier@fxcm.com .
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