ECB Tapers Bond Purchases, EUR/USD Volatility Implodes Again

We are seeing yet another exciting pocket of Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term bursting across the currency markets this afternoon. After taking a beating earlier, King dollar is back at center stage and is pulling a 1% rally against the euro.

Mario Draghi, the President of the European Central Bank (ECB), has just sent the EUR/USD into a tailspin after stating that the central bank will continue its easy monetary policy. The ECB has once again voiced an opinion that European governments should do more on the fiscal side.

The lack of structural reforms across the continent is forcing the hand of the ECB to maintain a very light monetary policy. This policy is keeping a lid on job growth as investment has dried up and companies are not taking enough risks to pursue growth opportunities.

President Draghi is caught between a rock and a hard place. He cannot raise rates while his peers across the Atlantic might be driving the U.S. economic machine into a new cycle of bullishness in the aftermath of the election of Donald Trump as President.

The EUR/USD has been substantially affected by the ECB's announcement that it is going to taper its bind purchasing program by reducing the amount of securities it is purchasing on the open market by €20 billion euros a month.

Subsequently, the move has been reversed, as the central bank committed to "keep rates at current or lower levels" for a protracted period of time. And so the next pocket of volatility implodes and brokers are looking at substantial increase in trading activity once again this week.