Draghi’s “risk sharing” speech lifts EUR


ECB’s Draghi promotes drive for more risk sharing. With Italy jitters driving out spreads once again, the issue of Eurobonds, now under the guise of euro safe assets, has come back again and the outgoing ECB President questioned today the notion that risk reduction needs to precede risk sharing to complete the banking union and that deepening risk-sharing through the private sector should take precedence over increasing public risk-sharing. Draghi said “the notion that we face inherent tradeoffs is false” and the comments seem to signal that Draghi would back a Eurozone-wide deposit facility as well as a joint fiscal facility and the creation of a Eurozone safe asset, which has become a hot topic again as Draghi’s term comes to an end and officials mull a general overhaul of the ECB’s monetary policy setting. Italy’s problems may be home made and so far there hasn’t been wider contagion, but the fact that peripherals remain vulnerable to bouts of risk aversion has brought the discussion back to the table, especially as the ECB is running out of ammunition.

The EUR bounced on the speech and has follow through momentum in the current hour as the EURUSD runs into the daily pivot at 1.1164, recovering from a low of 1.1148. EURJPY recovered from the 200-period moving average low at 123.08 and has also moved to the daily pivot at 123.25 and EURGBP rallied from earlier lows at 0.8773 beyond R1 and north of 0.8800 as Sterling continued to under-perform.

Stuart Cowell

Head Market Analyst

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