Strategy Centre

Analysis & Views

Mario Draghi and the EU prepare to go ‘all in’ over QE

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steve w background

Thursday 22 January 2015 12:45pm London time (13:45 Frankfurt): ECB monetary policy announcement 13:30pm London time (14:30 Frankfurt): ECB president Draghi press conference What is QE? An unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity. Quantitative easing is considered when short-term interest rates are at or approaching zero, and does not involve the printing of new banknotes. How does it work? Typically, a central bank targets the supply of money by buying or selling government bonds. When the bank seeks to promote economic growth, it buys government bonds, which lowers short-term interest rates and increases the money supply. This strategy loses effectiveness when interest rates approach zero, forcing banks to try other strategies in order to stimulate the economy. QE targets commercial bank and private sector assets instead, and attempts to spur economic growth by encouraging banks to lend money. The rumours Yesterday the WSJ and Bloomberg sited sources…

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The VIX, Volatility and volume

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Steve Ruffley, Chief market strategist   There has been much talk of the VIX and the currently levels of volatility within the markets. What does this mean for you the trader? Firstly we have to understand what the VIX actually is. “VIX is a trademarked ticker symbol for the Chicago Board Options Exchange Market Volatility Index, a popular measure of the implied volatility of S&P 500 index options. The VIX is a widely used measure of market risk and is often referred to as the “investor fear gauge.” When trading, especially in the short term, it is very important to understand how the VIX, volume and volatility will impact your trading as we step in the Christmas. Although the VIX indicates ‘fear’ it does not mean that you should fear the market conditions, if anything with adequate risk reward you can use this to your advantage. Fear – Higher the VIX the greater the fear Fear means that markets may act irrationally. Markets move 80% of the time technically and 20% of the time fundamentally. When fear is driving the markets the 20% is much more prevalent. You can use…

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