Over the last months, Mario Draghi has dropped a couple of hints
suggesting that ECB Quantitative easing may be expanded beyond
September 2016, which was the initial end date for the easing program.
As a result, we became increasingly dubious about the true efficiency of
this monetary policy. Recent Eurozone data does not seem yet very
encouraging (industrial production and inflation in particular). Moreover, it
is difficult to support a policy that has failed to deliver the desired result in
Japan and in the U.S. The latter is still struggling to end its zero interest-
rate policy after three different QE programs.
The ECB is trying to reach an inflation target of 2% through its monetary
program. If we have to expand the QE beyond September 2016, it only
means that we have to even further increase the monetary base than what
we intended to do. This definitely shows that even Draghi is concerned
about the true efficiency of his program. Therefore, we find it
contradictory when Draghi claims that the program is working better than
expected and that it will only take longer. If the objectives were realistic,
we would not have to inject more money. Draghi is certainly trying to
ensure the markets that everything is going well. He is trying to reduce
volatility and also to avoid any panic effect that would result if it clearly
appears that ECB's monetary policies are not working. The central bank's
credibility would be at stake.

The EUR-complex strengthened on Draghi's comments. Expectations for
the single currency are improving. Nonetheless, we remain bearish on the
EURUSD, which we consider overvalued. The pair is currently trading
above 1.1350, and we will be carefully watching out for some possible
euro weakness, which would lead the pair to head back towards the
1.1200 level.

Regards.