Bullish Expectations of ECB Rate Cut Not Influenced by Lagarde’s Comments

(eToro Blog) Hours ahead of the ECB’s policy making decision which will be announced tomorrow, and which is highly expected to include an interest rate cut, today comes word that the head of the International Monetary Fund is unsure whether or not such a move would be in the entire Eurozone’s best interests. Christine Lagarde acknowledges that while there is sufficient scope for a rate cut, not every E.U. member would benefit from it, citing Germany, the Eurozone’s powerhouse, as an example. On the other hand, she did acknowledge that distressed economies like Spain, Italy and Greece might need a rate cut.

What is really needed, she argues is the fiscal union that the E.U. Summit promised, and she hopes that the process will be sped up so that an authority which would be binding over national supervisors can be put in place. Lagarde believes a fiscal union could eventually lead to the creation of a joint finance ministry or perhaps a debt agency, but it is needed quickly so that common objectives and a fiscal policy can be identified.

Markets have been pricing in the possibility of an ECB rate cut and Ms. Lagarde’s commentary likely won’t change that sentiment. Europe’s equity markets have been down for most of the morning, dragged lower by the banking sector as the fallout of the LIBOR scandal continues. But as the hours dwindle toward the ECB announcement, analysts expect that market players will position themselves appropriately. Some Euro traders are planning to go long in the Euro, though that would seem contrary to logic as easing tends to devalue a currency. A rate cut is positive in the longer term, since the Euro is a growth linked currency, and easing would help to promote economic growth. On the other hand, the EUR/USD pair could see a swift drop before it regroups, and short scalpers could profit from that scenario.

Sentiment on the OpenBook EUR/USD is being driven by bulls, 75% to 25%. Despite majority sentiment, OpenBook guru thesizzle from Tanzania, placed an order to sell at 1.2600, and is currently going short on the pair, a decision which he and his 891 copiers have been enjoying. The guru earlier closed two three shorts, with gains which ranged from 17.86% to as high as 53%. One open short position now more than a week old is showing a small 5.33% gain and is targeting 1.244 while another targets 1.22. Over the past month the trader’s 96.8% holding in the EUR/USD has returned 35.9%, the highest in the portfolio. Over the same 1-month period, the guru’s portfolio has shown a profit of 90.2%, which grows to 101.7% for the quarter and above 300% beyond that.

Copyright 2012 eToro Blog