Euro at Risk on Critical Test in ongoing Greek Debt Crisis

DailyFX.com –

  • Greek debt difficulties threaten to force important Euro volatility
  • Key debt auction on April 8, 2015 a key event on the calendar
  • Failure to roll over existing debt raises the threat of Greek default

We’ve recently written on why Greece remains a major threat to financial market stability and the Euro currency itself. And indeed those tensions may be coming to a head as traders send EUR/USD volatility prices significantly higher ahead of the upcoming Greek debt auction. The central point is clear: if Greece fails to refinance expiring Treasury Bills at an acceptable rate, the risks of a larger Greek government default grows significantly.

Key Dates Continue to Warn of Substantial Volatility

April 8 Greek Government to auction €875 million in 178-Day Treasury Bills

April 9 – Greece is to pay €460m to the IMF under terms of first bailout agreement.

April 14 €1,400m of short-term Greek Treasury Bills mature, forcing Greece to roll over into new debt.

April 15Greek Government to auction yet-undetermined amount in 3-month Treasury Bills

A look at FX volatility prices show that traders predict volatility will be especially high through tomorrow’s close, while 1-week and 2-week volatility prices are significantly above even one-year options.

Euro 1-Day Volatility Prices Are Substantially Above 1-Year Prices – Underline Urgency

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Euro at Risk on Critical Test in ongoing Greek Debt Crisis

Data source: Bloomberg. Chart source: R, ggvis

As we wrote last week, some of the most sophisticated traders in the world believe that the coming two weeks will bring substantially more uncertainty than the coming year. This is somewhat illogical—there’s far more you can’t know about 365 days in price action than you can expect in 24 hours. Yet it underlines the urgency of upcoming risks.

What’s at Stake?

If the Greek government fails to hold a successful auction for a relatively modest €875 million in 178-Day Treasury Bills it will signal that investors have all but lost confidence in its solvency.

As it stands most of the Greek government’s short-term debt is held by domestic banks. In normal circumstances those same banks might step in and buy more Greek debt. Yet the domestic financial sector is heavily dependent on substantial Emergency Liquidity Assistance (ELA) from the European Central Bank for its own liquidity. European officials have already told Greek banks that they are not to increase their holdings of short-term government debt.

Demand for tomorrow’s auction will have to come from private investors—domestic or abroad—to cover any gaps for the embattled Greek Treasury. The secondary market for the maturing debt shows that private investors are demanding a usurious 35 percent effective annual yield for debt maturing next week. This is a dangerous signal that private demand will not cover the shortfalls of what Greek banks cannot buy themselves.

Yield to Maturity on Greek Treasury Bills due April 14 Surges to Usurious 35 Percent

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Euro at Risk on Critical Test in ongoing Greek Debt Crisis

Data source: Bloomberg Generic Pricing (BGN). Chart Source: R

The apparent lack of private demand for its Treasury Bills leaves the Greek Government at risk, and ultimately its best hope may rest on purchases from other sovereign governments. And indeed Greek Government officials have made very public overtures to curry favor with Chinese and Russian governments as of late. Whether or not this results in actual bond buying remains to be seen.

Euro Reactions are Far from Predictable

We’re entering a critical stretch for the ongoing Greek sovereign debt crisis, and the next 24 hours may determine near-term direction in the Euro and domestic financial markets.

If the upcoming Greek debt auction fails to elicit sufficient interest, we could see substantial Euro volatility and broader financial market turmoil. Heightened sovereign risks could discourage market makers from making prices in EUR pairs, and in effect this means that the Euro could both rally and fall sharply on any news headlines.

Any surprises could force substantial market moves, and traders should limit trading leverage—particularly in EUR pairs—ahead of the key dates.

— Written by David Rodriguez, Quantitative Strategist for DailyFX.com

Contact and follow David via Twitter: https://twitter.com/DRodriguezFX

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Positioning Unwind May be Driving Factor, Not QE, for Euro

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Positioning Unwind May be Driving Factor, Not QE, for Euro

Fundamental Forecast for Euro: Neutral

The technical prospects of a top in the US Dollar (vis-à-vis the USDOLLAR Index) have accumulated the past week.

EURUSD and USDCHF wedges hint at possibility of bottoms in European FX starting to take shape.

Have a bullish (or bearish) bias on the Euro, but don’t know which pair to use? Use a Euro currency basket.

The Euro stabilized in the second week of December, just a few days after hitting fresh yearly lows below $ 1.2250 against the US Dollar. EURUSD closed on Friday with a five-day gain of +1.44%, finishing the week at $ 1.2459. The 18-member currency only closed lower versus the Japanese Yen, with EURJPY declining by -0.81% to ¥147.95. Although chatter regarding a potential QE program from the European Central Bank has only increased in the wake of its December 4 meeting, the combination of year-end portfolio rebalancing and overstretched short positioning may be contributing to the recent rebound.

For several months, the futures market has been stretched with net-short Euro positions. Peak bearishness was evident in early-November, when traders were net-short to the tune of 179.0K contracts for the week ended November 4. As of December 9, short positions were being lifted, contributing to the recently choppy rate of decline, having eased to 136.9K contracts. Herein lies the longer-term hope for bears: even as short positions abated from November 4 to December 9, EURUSD has still managed to decline by -1.37%.

Even if any upward drift in recent days is the result of further short covering – something we won’t have definitive proof of until the next release of the CFTC’s Commitment of Traders report on December 19 – traders need to be aware of this threat into trading conditions around the holidays. Overarching fundamental themes of 2014 could lose gravitational pull on price as traders’ anxiety to close their books builds.

Although economic conditions have moved off the low, the Euro-Zone remains in an economic state on the verge of its third recession since the financial crisis began in 2008. The Citi Economic Surprise Index closed the week at -20.3, barely changed from the prior weekly close on Deecmber 5 at -21.4, and little changed overall over the past month, when the index was at -26.4 on November 14.

The greatest source of distress that should hold back market participants from helping the Euro set anything other than a short-term bottom is the ongoing pressure in medium-term inflation expectations. The 5Y5Y breakeven inflation swap, ECB President Mario Draghi’s purported preferred market measure of medium-term inflation expectations, slumped to a new yearly low. The gauge fell as low as 1.364% on Friday and closed the week at 1.377%.

With inflation expectations still disparingly low, the ECB’s doves will continue to chirp about a potential QE program, which should be a big enough threat to keep a major Euro rally from commencing. Several policymakers have stated their desire to see the ECB’s balance sheet move back towards its early-2012 levels (roughly €2.6 to €3.1 trillion), and there are few signs that the current measures are accomplishing just that: as of December 5, the ECB’s balance sheet stood at €2.04 trillion, barely higher than the €2.01 trillion it was three-months earlier. Euro bulls shouldn’t get too comfortable just yet. –CV

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Euro hits 27-month low versus dollar on ECB easing bets

The euro slid to a 27-month trough against a buoyant dollar on Wednesday, a day ahead of a crucial European Central Bank meeting that could pave the way for more easing measures in the euro zone.

The greenback also hit a seven-year peak against the yen, boosted by comments from US Federal Reserve officials who painted an upbeat picture of the US economy despite falling oil prices, prompting a ramping up of expectations of a mid-2015 interest rate rise.

Those gains helped the dollar hit its strongest point since March 2009 against a basket of major currencies at 88.867 .

New York Fed president William Dudley reiterated on Tuesday that for now the dramatic drop in oil prices – down more than 30 per cent since June – was a net benefit for the United States, helping U.S. consumers and major trade partners.

“The ‘considerable time’ phrase … is certainly under threat and in that environment there’s not going to be much appetite for selling into the dollar,” he added, referring to a phrase used by the Fed to describe when rates will rise.

The euro fell 0.4 per cent to $ 1.2331, its weakest since late August 2012, could rebound on Thursday if the ECB fails to announce any new measures to shore up the struggling euro zone economy and ward off the threat of deflation.

The dollar climbed to 119.44 yen on trading platform EBS, its strongest level since August 2007. The dollar last traded near 119.35 yen, up 0.1 per cent on the day.

The greenback also rose against the Australian dollar, which slid to a 4-year low of $ 0.8388 after data showed Australia’s economy unexpectedly slowed last quarter, prompting markets to price in more chances of an interest rate cut.

Reuters

FOREX-Euro hits 27-month low vs strong dollar on ECB easing bets

* Euro skids to 27-month low ahead of ECB meeting

* Greenback sets fresh 7-year high vs yen

* Dollar index touches 5-1/2 year peak

* Aussie falls to 4-year low after Q3 GDP disappoints

By Jemima Kelly

LONDON, Dec 3 (Reuters) – The euro slid to a 27-month trough against a buoyant dollar on Wednesday, a day ahead of a crucial European Central Bank meeting that could pave the way for more easing measures in the euro zone.

The greenback also hit a seven-year peak against the yen, boosted by comments from U.S. Federal Reserve officials who painted an upbeat picture of the U.S. economy despite falling oil prices, prompting a ramping up of expectations of a mid-2015 interest rate rise.

Those gains helped the dollar hit its strongest point since March 2009 against a basket of major currencies at 88.867 .

New York Fed President William Dudley reiterated on Tuesday that for now the dramatic drop in oil prices – down more than 30 percent since June – was a net benefit for the United States, helping U.S. consumers and major trade partners.

“The balance of Dudley’s comments suggest he’s playing down the global environment and he was much more keen on emphasizing the positive impact on growth from falling,” said Derek Halpenny, European head of global markets research at Bank of Tokyo-Mitsubishi UFJ in London.

“The ‘considerable time’ phrase … is certainly under threat and in that environment there’s not going to be much appetite for selling into the dollar,” he added, referring to a phrase used by the Fed to describe when rates will rise.

Halpenny said the euro, which fell 0.4 percent to $ 1.2331 , its weakest since late August 2012, could rebound on Thursday if the ECB fails to announce any new measures to shore up the struggling euro zone economy and ward off the threat of deflation.

The dollar climbed to 119.44 yen on trading platform EBS, its strongest level since August 2007. The dollar last traded near 119.35 yen, up 0.1 percent on the day.

“In terms of flows, overseas (non-Japanese) players seem to be buying (dollars against the yen) aggressively on dips,” said a trader for a Japanese bank in Singapore.

The greenback also rose against the Australian dollar, which slid to a 4-1/2-year low of $ 0.8388 after data showed Australia’s economy unexpectedly slowed last quarter, prompting markets to price in more chances of an interest rate cut.

(Additional reporting by Masayuki Kitano in Singapore and Ian Chua in Sydney; Editing by Andrew Heavens)

Hints of Future Easing Keep Euro Pinned Lower, for Now

Fundamental Forecast for Pound:Neutral

The ECB sparked fresh yearly lows in EURUSD as December is eyed for a fresh round of stimulus.

Mixed October US NFPs give EURUSD breathing room for recovery sub-$ 1.2500.

Have a bullish (or bearish) bias on the Euro, but don’t know which pair to use? Use a Euro currency basket.

After days of reports that discord was growing among European Central Bank policymakers, last week’s policy statement following the rate decision made clear that unanimity exists – and it’s led by the Mario Draghi, dovish contingent of central bankers. EURUSD’s slump to fresh yearly lows under $ 1.2400 comes up against the backdrop of the ongoing divergence between monetary policies across the pond.

Armed with fresh rhetoric suggesting that the ECB could announce a major easing program resulting in a massive expansion of the ECB’s balance sheet, Euro bears increased their short exposure to a near-two and a half year high at 179.0K net-short contracts, the highest level since the week ended June 12, 2012, at 195.2K contracts. Last week, we explored why we may see further extreme positioning readings in Euro before a tangible bottom is formed.

Policymakers find it necessary to keep the door open for more easing, which has become a veritable weight on the 18-member currency. ECB President Draghi’s big announcement this week was that the ECB could boost its balance sheet back to levels unseen since early-2012; this would roughly entail a €1 trillion expansion from current levels. The last time there was a €1 trillion stimulus wave – in the form of the LTROs in December 2011 and February 2012 – the Euro suffered immensely against its major counterparts.

While no major easing program has been thus far announced, the overhanging threat of additional stimulus, against the current economic backdrop, seems believable; rather, Euro-Zone economic data remains poor enough that the threat of imminent easing is believable. The Euro-Zone Citi Economic Surprise Index is holding at -32.4, off the yearly low of -57.3; relatively this is a disappointing, considering the US CESI is at +15.0.

The prospect of further stimulus, in the burgeoning era of BoJ- and ECB-led stimulus, now that the Fed is seemingly walking away from the game, might be enough to spook market participants from seriously engaging the Euro from the long side. Indeed, with the market still supersaturated with bears, there remains an ample pile of kindling left for a short covering rally – just not yet. –CV

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Bearish EUR/USD Outlook Vulnerable If ECB Attempts to Buy Time

European Central Bank (ECB) to Announce Further Details Surrounding Non-Standard Measures.

Will ECB President Mario Draghi Talk Down the Euro?

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Trading the News: European Central Bank (ECB) Interest Rate Decision

Further details surrounding the European Central Bank’s (ECB) asset-back securities (ABS) and covered-bond purchase program may heighten the bearish sentiment surrounding the Euro, but we may see a relief rally in the EUR/USD should the Governing Council use the interest rate decision as an attempt to buy more time.

What’s Expected:

EUR/USD ECB

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Why Is This Event Important:

The ECB may refrain from addressing the unanswered questions surrounding the non-standard measures as President Mario Draghi waits for the results of the second targeted long-term refinancing operation (T-LTRO), and the EUR/USD may face a near-term correction should the fresh developments dampen bets for more easing.

Expectations: Bearish Argument/Scenario

The ECB may sound increasingly dovish amid the growth threat for deflation, and the EUR/USD may face a further decline should the council keep the door open for more non-standard measures, which may quantitative easing (QE).

Risk: Bullish Argument/Scenario

Nevertheless, the ECB may scale back its dovish outlook amid the improvements in the monetary union, and the Euro may face a near-term bounce should the central bank adopt a wait-and-see approach.

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How To Trade This Event Risk(Video)

Bearish EUR Trade: ECB Keeps Door Open for More Non-Standard Measures

  • Need red, five-minute candle following the updated foreward-guidance to consider a short EUR/USD trade
  • If market reaction favors a short Euro trade, sell EUR/USD with two separate position
  • Set stop at the near-by swing high/reasonable distance from cost; at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is met, set reasonable limit

Bullish EUR Trade: Governing Council Tries to Buy More Time

  • Need green, five-minute candle to favor a long EUR/USD trade
  • Implement same strategy as the bearish euro trade, just in the opposite direction

Read More:

Scalping the AUDCHF Reversal- 8360 Resistance in Focus

COT: US Dollar Speculator Long Position is Largest on Record

Potential Price Targets For The Release

EUR/USD Daily

EUR/USD Daily Chart

Chart – Created Using FXCM Marketscope 2.0

  • DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-short the dollar, with the EUR/USD ratio current sitting at +1.34.
  • Interim Resistance: 1.3010 (50.0% retracement) to 1.3020 (23.6% expansion)
  • Interim Support: 1.2450 (78.6% retracement) to 1.2500 pivot

Impact that the ECB rate decision has had on EUR/USD during the last meeting

September 2014 European Central Bank Interest Rate Decision

EUR/USD Chart

The European Central Bank unexpectedly cut the benchmark interest rate to fresh record low of 0.05% as the downside risks surrounding the growth outlook raises the threat for deflation. The Governing Council also laid out an asset-backed securities (ABS) purchasing plan to further boost private-sector lending, with details to be disclosed at the October 2 policy meeting. As a result, it seems as though the Euro will face additional headwinds over the near to medium-term as the ECB continues to push monetary policy into unchartered territory. The EUR/USD plummeted following the new wave of monetary support, with the pair dropping over 100 pips during the North American trade, but we saw a minor bounce going in the close as the euro-dollar ended the day at 1.2932.

— Written by David Song, Currency Analyst and Shuyang Ren

To contact David, e-mail [email protected] Follow me on Twitter at @DavidJSong.

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Euro Vulnerable to Slowing Inflation- Bearish NZD/USD Setup Favored

DailyFX.com –

Talking Points:

EUR/USD Vulnerable to Further Losses on Slowing Euro-Zone Inflation.

NZD/USD Gets Slammed as Prime Minister John Key Favors 65.00 Exchange Rate, RBNZ Intervenes.

USDOLLAR Topside Targets Remain Favored as Bullish RSI Momentum Gathers Pace.

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EUR/USD

  • EUR/USD may face a further decline ahead of the European Central Bank’s (ECB) October 2 meeting should the Euro-Zone’s Consumer Price Index (CPI) show a greater threat for deflation.
  • Bearish momentum in the Relative Strength Index (RSI) favors downside targets, especially as the oscillator dips back into oversold territory.
  • DailyFX Speculative Sentiment Index (SSI) continues to highlight net-short U.S. dollar positioning, with the EUR/USD ratio currently standing at +1.44.

NZD/USD

  • NZD/USD slips to a fresh monthly low of 0.7706 as Reserve Bank of New Zealand (RBNZ) announces it sold NZ$ 521M in August, the largest intervention since July 2007, while Prime Minister John Key says 0.8600 region is the ‘goldilocks’ exchange rate for the kiwi.
  • Bearish RSI momentum continues to favor the downside targets, especially as the oscillator pushes deeper into oversold territory.
  • Next key downside target comes in around 0.7470-80, the 78.6% retracement from the 2011 lows.

Join DailyFX on Demand for Real-Time SSI Updates Across the Majors!

Read More:

Price & Time: RBNZ A Seller

Technical Case for Weak EUR/USD Persists – Will Fundamentals Match?

USDOLLAR(Ticker: USDollar):

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Euro Vulnerable to Slowing Inflation- Bearish NZD/USD Setup Favored

Chart – Created Using FXCM Marketscope 2.0

  • Dow Jones-FXCM U.S. Dollar Index continues to mark fresh monthly high (11,057) ahead of the highly anticipated Non-Farm Payrolls (NFP) report even as the U.S. economy is expected to add 218K jobs in September.
  • Will also keep a close eye on Average Hourly Earnings as wage growth is expected to pick up for the second consecutive month; 2.2% would mark the highest reading since October 2013.
  • Despite the dovish remarks from Chicago Fed President Charles Evans, who votes on the Federal Open Market Committee (FOMC) in 2015, we will continue to look for USDOLLAR strength as along as the RSI preserves the bullish momentum, with the next topside region coming in around 11,120 (1.618% expansion) to 11,138 (61.8% expansion).

Join DailyFX on Demand for Real-Time SSI Updates!

Click Here for the DailyFX Calendar

— Written by David Song, Currency Analyst

To contact David, e-mail [email protected] Follow me on Twitter at @DavidJSong.

To be added to David’s e-mail distribution list, please follow this link.

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Looking to use the DailyFX Trade Signals LIVE? Check out Mirror Trader.

New to FX? Watch this Video

Join us to discuss the outlook for the major currencies on the DailyFXForums

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ECB attack on deflation threat drives down euro, boosts stocks

London (AFP) – A surprise rate cut and major policy announcement by the European Central Bank pushed the euro down sharply and boosted European and US stocks on Thursday.

The euro fell to the lowest levels for more than a year against the dollar, hitting 1.2920 by 1600 GMT, after the ECB caught markets off guard by cutting its key interest rates to ward off deflation.

ECB chief Mario Draghi also unveiled plans to buy asset-backed securities (ABS) to help kick-start lending in the region, as well as a programme to purchase covered bonds.

This is a technique for buying certain types of assets out of bank balance sheets and replacing them with cash, in the hope it will be passed on in the form of loans.

“The ECB has just shocked the market,” said Jameel Ahmad, Chief Market Analyst for FXTM.

“This surprising move does showcase how eager the ECB are to encourage banks to lend again, and they clearly see negative deposit rates as an alternative way to improve inflation levels,” he added.

International Monetary Fund chief Christine Lagarde welcomed the new measures, saying in a statement that they would help “counter” low inflation.

By the close of markets, the Paris CAC 40 had surged by 1.65 percent to 4,494.94 points, while Frankfurt’s main DAX index gained 1.02 percent to 9724.26 points.

London’s benchmark FTSE 100 ended largely flat on 6,877.97 points, dragged down by a slump in oil giant BP’s shares.

– US stocks gain –

The move also boosted Wall Street, with the Dow Jones Industrial Average gaining 0.29 percent to 17,127.18 points in mid-afternoon trading.

The broad-based S&P 500 added 0.27 percent to 2,006.03, while the tech-rich Nasdaq Composite Index advanced 0.45 percent to 4,591.17.

Pressure had increased on the ECB to act after eurozone inflation slowed to just 0.3 percent in August, down from 0.4 percent the previous month.

Facing growing concern that the eurozone is on the verge of falling into a dangerous spiral of falling prices, the ECB on Thursday cut its central “refi” refinancing rate to 0.05 percent from 0.15 percent.

It also lowered the deposit rate to negative 0.20 percent from negative 0.10 percent and trimmed its marginal lending rate to 0.30 percent from 0.40 percent.

Hermes Group chief economist Neil Williams said the moves were “a step in the right direction, but too little, too late to snuff out deflation-risk and kick-start growth”.

“These rates may have to be cut again — especially if the unfortunate conflict to the east causes an increasingly direct macro hit on Germany’s growth.”

In a hectic day of financial markets, the euro had begun to fall even before the ECB announcement.

– Standard Life shares surge –

Sterling rose to 79.08 pence to the euro, but fell to $ 1.6344 — the lowest level since February 11.

The yuan ended at 6.1386 to the dollar, the highest closing level since March 13, from 6.1414 late on Wednesday.

The price of gold was at $ 1.271.50, from $ 1,265.50 on Wednesday on the London Bullion Market.

In Paris, France was able to borrow at a new record-low rate when it issued 10-year bonds. The country raised 4.297 billion euros ($ 5.7 billion) at 1.32 percent, down from the last record low rate on July 3 of 1.77 percent.

In company news, stocks in oil giant BP tumbled nearly 6 percent after a US judge ruled the massive 2010 Gulf of Mexico oil spill was due to the company’s “gross negligence,” potentially opening up the oil giant to billions of dollars in additional fines.

The company said in a statement that it “strongly disagrees” with the decision and would appeal.

The top gainer in London was Standard Life, after it agreed to sell its Canadian activities to Manulife of Canada for £2.2 billion ($ 3.6 billion, 2.8 billion euros).

Standard Life shares gained 8.05 percent to 417.20 pence.

Euro plunges, stocks rise as ECB attacks deflation threat

A surprise rate cut and major policy announcement by the European Central Bank pushed the euro down sharply and boosted European and US stocks on Thursday.

The euro fell to the lowest levels for more than a year against the dollar, down to 1.3026 after the ECB caught markets off guard by cutting its key interest rates to ward off deflation.

It also made a major announcement that it would launch a programme to buy asset-backed securities.

?The ECB has just shocked the market,” said Jameel Ahmad, Chief Market Analyst for FXTM.

“This surprising move does showcase how eager the ECB are to encourage banks to lend again, and they clearly see negative deposit rates as an alternative way to improve inflation levels,” he added.

Analysts had expected that the ECB would lay out the prospects for some form of quantitative easing, meaning injections of substantial amounts of cash into the economy.

Analysts had warned that a decision not to announce any measures to ward off deflation would “send shockwaves through equities globally.”

In the event, the bank’s announcements pushed up stocks just as they pulled down the euro.

Speaking after the rate cut, ECB president Mario Draghi said in a landmark policy announcement that the ECB would buy “a broad portfolio of simple and transparent asset-backed securities (ABSs).”

This is a technique for buying certain types of assets out of bank balance sheets and replacing them with cash, in the hope it will be passed on in the form of loans.

By early afternoon, the Paris CAC 40 was showing big gains from Wednesday’s closing level of 1.66 percent to 4,495.06 points.

London’s benchmark FTSE 100 index added 0.22 percent to 6,888.69 points, and Frankfurt’s DAX 30 index was down 0.33 percent to 9,594.33, but this was stronger than the level of 9,567.84 before the announcement.

US stocks followed European equity markets and opened higher.

– QE or ABS –

Five minutes into trading, the Dow Jones Industrial Average gained 31.18 points (0.18 percent) to 17,109.46.

The broad-based S&P 500 rose 3.24 (0.16 percent) to 2,003.96, while the tech-rich Nasdaq Composite Index advanced 10.24 (0.22 percent) to 4,582.81.

Pressure had increased on the ECB to act after eurozone inflation slowed to just 0.3 percent in August from 0.4 percent the previous month.

The latest data puts inflation worryingly below the central bank’s target of just under 2.0 percent and brings the single currency area perilously close to deflation.

This is a climate of falling prices which can cause businesses and consumers to delay purchases, further reducing demand and prices and pushing up unemployment.

But there is resistance to responding to this risk with quantitative easing (QE) because it would entail the ECB buying up sovereign bonds, which many critics — including the German central bank or Bundesbank — view as monetary financing, or printing money to pay a country’s debt.

– Standard Life shares surge –

In a hectic day of financial markets, the euro had begun to fall even before the ECB announcement.

Sterling rose to 79.32 pence to the euro, but fell to $ 1.6438, having reached $ 1,6395 — the lowest level since February 11.

The Swiss franc edged up against the euro to 1.2056 francs to the euro, having reached 1.2044 to the euro, the highest rate since the end of November 2012. But it was down at 0.9256 francs to the dollar.

The yuan ended at 6.1386 to the dollar, the highest closing level since March 13, from 6.1414 late on Wednesday.

The price of gold was at $ 1.271 at the morning fixing, from $ 1,265.50 on Wednesday on the London Bullion Market.

In Paris, France was able to borrow at a new record low rate when it issued 10-year bonds. The country raised 4.297 billion euros ($ 5.7 billion) at 1.32 percent, down from the last record low rate on July 3 of 1.77 percent.

In company news, the top gainer in London was Standard Life after agreeing to sell its Canadian activities to Manulife of Canada for £2.2 billion ($ 3.6 billion, 2.8 billion euros).

Standard Life shares showed a gain of 8.13 percent to 417.5 pence.

British packager DS Smith says weaker euro a threat to earnings

By Aashika Jain

(Reuters) – Recycled packaging maker DS Smith Plc (SMDS.L) said it expected results in the coming year to be constrained by a weaker euro and a continuing tough economic environment in Europe.

The company’s shares fell as much as 5 percent in morning trading on Thursday, making the stock one of the top losers on the FTSE-250 (.FTMC).

DS Smith, which reported a doubling in pretax profit for the year ended April 30, said a change of 1 euro cent in the pound/euro exchange rate affected pretax profit by about 1.2 million pounds.

“If sterling continues to strengthen, it would obviously have an effect on us,” Chief Executive Miles Roberts told Reuters. “We offset it last year, but we do have that headwind, and we really don’t know where sterling will go.”

The company, whose customers include Procter & Gamble Co (PG.N), Nestle SA (NESN.VX) and Unilever Plc (ULVR.L), generates about 65 percent of its earnings in euros and more than 70 percent of its revenue comes from outside of the UK.

Jefferies analyst Justin Jordan estimated a 3-4 percent hit in the current fiscal year due to the strong pound, while maintaining a “hold” rating on the stock.

Roberts said DS Smith, which specialises in fully recyclable corrugated packaging, would have to react if paper prices rose strongly. The company raised prices in the first half of its fiscal year to help offset a 15-20 percent rise in paper costs.

DS Smith’s full-year revenue rose 10 percent to 4.03 billion pounds, while pretax profit rose to 167 million pounds from 82 million pounds a year earlier.

The company raised its final dividend to 6.8 pence per share from 5.5 pence.

DS Smith’s earnings include a 12-month contribution from Swedish packaging firm SCA Packaging, which it acquired in 2012, compared with 10 months in the year-earlier period.

The company’s shares were down 4 percent at 293 pence at 0848 GMT.

(Reporting by Tasim Zahid and Aashika Jain in Bangalore; Editing by Gopakumar Warrier and Ted Kerr)