EUR

Still my prediction 1.275 is valid, and its a not technical but 100% political target, nevertheless I have just closed the long positions , possibly the markets expects pro-Obama shining NFP and Fed moves farther away from QE.

mind boggling stuff but mkt seemed to like it today

Well and Merkel is now finally out.... long term traders bet on Eurobonds by shorting german bonds...it is a matter of some months but some 100% profit ...

Well noted by JPM.

To truly sterilize the ECB could:
(1) sell bonds out of its existing portfolio (but they're pretty much the same bonds they're planning on buying in)
(2) wait for existing holdings to mature (defeats the purpose again)
(3) sell other asset holdings i.e. gold (but that creates a relatively low upper limit for intervention)
(4) unwind LTRO funding prior to the 12mth anniversary. Perhaps. How many banks that took LTRO funds are now sitting on surplus cash at 0%? (i.e. have too much liquidity, and are eroding capital) Cutting the deposit rate below zero and releasing even more surplus cash into the system via bond purchases would strengthen the incentive. (only the ECB knows....)

Which leaves us with the less permanent options: a deposit facility or shorter-dated open market operations (i.e. repo out assets it is holding as a result of other monetary operations, such as LTRO collateral). At the short end, they don't sterilize anything or change the risk profile materially - just change the name of the facility. However, if cash were to be locked away for the tenor of the bonds purchased, then perhaps those facilities would do the trick too. After all, what makes some things QE and other things not? A bond purchased will mature eventually (or can be sold), an overnight operation like a repo (or discount window loan) can be rolled indefinitely. The difference lies in where credit risk sits, and thus where capital is required. That's what will drive the impact on the broader economy

Ok here is how ECB thashing is supposed to work

It is worth noting what the current form of sterilisation actually does. When the ECB purchases peripheral bonds it pays for these by creating new bank reserves (i.e. creating electronic money). Both sides of the ECBs balance sheet increase in size, as additional peripheral bonds are held on the asset side in the SMP category, matched by a larger amount of bank reserves on the liability side. Initially, these reserves are added to banks current accounts at the ECB. The ECB then sterilises this new liquidity by offering banks the ability to shift balances from their fully liquid current accounts into fixed-term deposits, which currently have a one-week maturity.

We have always viewed this form of sterilisation as purely presentational and somewhat irrelevant. First, it does not shrink the ECBs balance sheet back to its original size, as would be the case if the ECB sold other assets to finance its SMP purchases. Second, it ties the funds down only for a very short one-week period, with these reserves even eligible as collateral at ECB refinancing operations. Third, as a result, the banking systems balance sheet remains more liquid and less risky as holdings of peripheral bonds have been permanently replaced with a short-dated claim on the ECB. Fourth, the sterilisation does not deal with the Bundesbanks real concern, which is that lower peripheral bond yields create moral hazard, with governments having less incentive to do their homework, fiscal policy therefore remaining unsustainable and creating inflation via an unanchoring of inflation expectations.

Hence, does the sterilisation really matter? From the point of view of the banks, the sterilisation simply transforms the holdings of reserves in their accounts at the ECB into a slightly different form. We doubt this changes bank behaviour in any meaningful way.