As expected, an increase in capital requirements just shot in from the ECB follow staunch rhetoric from Trechet last week showing his “now or never” face and quoted, stating the need for “maximum flexibility and maximum capacity, quantitatively and qualitatively”.
As it was expected, EUR's immediate reaction was to “sell the news”. In more of a shock scenario, as we saw last week, coupled with Moody's rhetoric about the US tax cuts and a potential downgrade, EUR gained some solid strength. Regardless even today we face some severe levels and continued purchases could always spur more buying….just don't let the news get too old. Keep in mind the root of all this is of course very poor, though “pro-activeness” is welcome by traders when less expected.
Related, the ECB bond purchasing numbers came in last week at approximately 2.7bb under the SMP program, a continued spike from previous weeks, which was extended through the first quarter of 2011 per the Dec. 2 meeting announcement.
We are still relatively consolidated today following yesterday's nasty decline during the U.S. session, with daily trendline resistance floating just above the current price from both demand and supply lines.
Below is a graphic of ECB bond purchases per the Wall Street Journal.
For the noobs, here is your study outline: http://en.wikipedia.org/wiki/Central_bank#Capital_requirements