Mario Draghi, the president of the European Central Bank did what he had to do; he expanded the ECB’s stimulus program and has cut the deposit rate even further, from -0.2% to -0.3% which makes it more expensive for banks to ‘park’ their cash at the central bank. That in itself already is a pretty aggressive move as not a lot of central banks (at least not the central banks of developed and first-tier nations) have dared to reduce the interest rates to less than zero in the past.

Source: ECB Twitter Account

The market reacted negatively and not only did the European indices fall by 3-3.5% from the intra-day high, the Euro gained a lot of strength versus the US Dollar and that wasn’t really the effect Draghi and his ECB-friends had been hoping for. In just a few minutes, the Euro gained 2.5-3% versus the majority of the other currencies. The stronger Euro will make it harder for the Eurozone to strengthen its position on the export market.

This also partly confirmed our thesis in our previous column, where we explained the US Dollar might have strengthened too fast and there might be a ‘cooling down’ period in the works. Let’s now have a look at the chart of the past week:

Source:stockcharts.com

In just one week since we warned the US Dollar might be overheating, the currency lost approximately 2.5% of its value with the majority of that loss occurring in one day. And just to give you an idea of how important and impressive this sudden swing was, on Thursday we saw the sixth largest EUR/USD swing in 25 years.

This indicated the market was expecting the ECB to take much more aggressive measures, but the European Central Bank failed to deliver on these expectations. Draghi tried to backpedal a bit on Friday by stating that an increase in the monthly amount that’s being pumped in the financial markets could still increase, but that seemed to be too little, too late.