Was yesterday the real D-Day?

Today June 6, marks the 70th anniversary of the invasion of the Normandy beaches by the Allies against the Nazis. Incidentally when a child, I though the Nazis was a shorthand word for the Nasties.  I guess I wasn’t far wrong on that score.

But it was yesterday on which the modern D-Day fell – D standing for DEFLATION.

The ECB unleashed their big bazooka – actually, it turned out to be a puny peashooter – and set a negative interest rate for banks to deposit funds with them.  Their brilliant idea is that if the banks are forced to move funds out of the central bank vaults, they might just lend to real businesses. This is ludicrous – they will be pushing on a string with this.

The basic EZ problem is weak final demand, not availability of credit.  Unemployment remains at depression-era levels, economic growth is barely positive, and the euro is way overvalued, making imports expensive.

The EZ is facing a negative CPI soon and this is desperation by the EC – and they are once again shutting the stable door with no sign of the horse.  Central banks react to events (usually when the trend is ready to reverse), and are definitely not proactive.

But hey – what a green light for equities and euro bonds!  Maybe investors should remember what happened every time the US Fed announced a new round of QE – stocks fell hard every time.

EUR/USD

With only a glimmer  of future possible  QE from the ECB, the initial knee-jerk selling gave way to vigorous buying:

The market made a highly accurate hit on my lower tramline and produced a key reversal.

The path of least resistance is now up.  Resistance is in the 137 area.  I will re-assess if/when it gets there.

Meanwhile, I have covered shorts for a good profit.