Mario Draghi managed on Thursday to talk down the euro – the latest volley in the cover ‘currency wars’. Ralph Atkins, capital markets editor, analyses the president of the European Bank’s verbal game theory.

James Mackintosh

Mario Draghi has promised to do what it takes to save the euro. Markets are doubtful (video) – but the logical conclusion of the European Central Bank boss’s justification for action is that the ECB should be shorting German bondsShort View column here.

James Mackintosh

The post-Draghi recovery has stalled. To recap: last Thursday ECB president Mario Draghi said the central bank is ready to do whatever is needed to save the euro, and markets went wild.

The markets are more nuanced today.

  • The euro is down (perhaps rationally: if the euro solution is to print money, debasement offsets the continued existence of the currency). Just as important for the technically-minded is that the euro failed to break its 30-day moving average, at $1.237.
  • The German 2-year yield has set a new low, coming close to -0.1% before recovering a little. Flight capital, in other words, is still headed for Germany. Longer dated German bond yields remain wider than last week, but are still tighter than at the start of July. There is not much confidence that Draghi will succeed in the face of the Bundesbank’s opposition.
  • On the plus side, Spanish yields continue to improve, with the 10-year having now plunged a full percentage point since last Tuesday, and short-dated yields also dropping sharply. Again, though, things remain worse at the end of July than they were at the start.

The two most important eurozone charts after the turn

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James Mackintosh

The new blog challenge: put these in order of how awful they’ve been since the euro was created:

  • Greek banks
  • Irish banks
  • Spanish banks
  • Italian banks
  • French banks
  • British banks
  • German banks
  • American banks

It is a serious challenge, given how much everyone hates all the banks. But if forced to choose, the order might reasonably go something like the above Рthe periphery, in order of rescue, middling eurozone, then the Brits (many of them already nationalised, plus the Libor-struck Barclays), followed by under-capitalised Germans and finally the resurgent Americans as the best of a bad bunch.

Equity investors don’t seem to share this view, as this great chart shows. Read more