Mario Draghi gave a bit more detail Thursday morning about the European Central Bank’s asset purchase program. Starting on March 9th, the EU will start buying bonds at a rate of 60 billion Euros a month to fight of the threat of deflation.  Draghi also stated that the program is planned to continue through September of 2016.

The ECB is committed to a QE program (quantitative easing) similar to what the Federal Reserve did in the U.S. six years ago. The ECB seems confident this is the way to go, after some mixed results on previous efforts. Two interest rate cuts since last June along with cheap, long-term loans have not had much positive effects in the EU to date. Draghi also said that the ECB is willing to buy bonds with negative yields, up to the deposit rate of -0.2%.

The ECB is looking for something to help its cause. It has shown it is willing to try anything over the last year. The latest decision comes at a time of uncertainty in the EU. Issues with Greece continue to hang over the region like a black rain cloud. Whether that rain cloud gives way to sunshine or is an early indicator of a larger storm involving Spain and Portugal is yet to be determined. All of these issues don’t bode well for the Euro currency in my opinion.

The Trade

  • In a bearish play I like buying a 1 x 2 ratio put spread.
  • I am looking to buy 1 April Euro Currency 110 put and sell 2 April Euro Currency 78 puts at 16 points ($200.00) or better.
  • I am looking for the Euro to trend lower from its current level near 110.40, and possibly trade to 109.00. 
  • I am setting an early target exit of 100 points.
  • We have exposure if the Euro is trading below 108 at expiration on April 2nd,so be sure to watch closely.

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For those interested in our weekly grain webinar Thursday March 5th at 3 PM Central time hosted by our Senior Grain analyst Tim Hannagan, please click here.

RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING.  THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT.  WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.