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    Mixed reaction to Germany’s OMT ruling


    EURUSD, 60 min

    Draghi’s promise to do “whatever it takes” to safeguard the Eurozone came with the promise of the OMT (Outright Monetary Purchases) and helped to end the debt crisis. Germany’s top court today finally gave its final clearance after initially referring it back to the EU’s top court, although with a caveat with the German Constitutional Court voicing concerns, but saying they were bound by the EU ruling, which argued that the plan contained sufficient safeguards to prevent the bond purchases from being disproportionate.

    Germany’s Ifo institute said the ruling was a “pity”, because it is “obvious that the OMT primarily pursues the fiscal aim of maintaining credit access for highly indebted states”. The Ifo would have liked the court to set tighter rules for the Bundesbank’s participation in the program. The ZEW meanwhile said the ruling is “very Europe friendly”, saying the focus on the implementation of the program in the ruling, means government and parliament will need to watch how the OMT is implemented, but also that “financial markets can now relax”. Germany has been trying to safeguard the ECB’s prohibition of direct government financing, but it seems the pressure for a mutualisation of costs and risks is getting ever stronger and the critics see the OMT as one step in the direction of direct financing.

    EURUSD is attracting some buying after the ruling was published but resistance levels are near. The nearest intraday resistance is at 1.1330 with the next intraday resistance at 1.1340. Intraday support at 1.1320. ECB’s Draghi will speak in about one hour’s time and might cause some extra volatility in the pair. I advise to reduce risk and when necessary to exit geared positions before an event that might move the markets in unpredictable ways.

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    Janne Muta

    Chief Market Analyst


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