A New Year's Eve Doozy From Jaw-Boner in Chief, Draghi

I suspected something might be up when I heard about the ECB's Peter Praet hinting at QE based on lower oil and badly missed inflation expectations (deflation), in a German newspaper. Of course any ECB QE ambitions, other than the fact they are outside the ECB's charter and would be challenged in constitutional courts (although Goldman Sachs , who pull Draghi's strings don't care about the law, never have, never will), the Chief Economic Advisor to Merkel said he sees no reason for QE sovereign bond purchases, apparently reacting to Praet's newspaper interview in a German paper no less. The Wiemar Republic is surprisingly fresh in the minds of Germans who weren't there to experience it, but at least they've learned something from history.

Later in the morning we get this jewel via none other than... REUTERS!

Draghi...

"Euro zone countries must "complete" their monetary union by integrating economic policies further and working towards a capital markets union, European Central Bank President Mario Draghi said.

In an article for Italian daily Il Sole 24 Ore on Wednesday, Draghi said structural reforms were needed to "ensure that each country is better off permanently belonging to the euro area".

He said the lack of reforms "raises the threat of an exit (from the euro) whose consequences would ultimately hit all members", adding the ECB's monetary policy, whose goal is price stability, could not react to shocks in individual countries.

He said an economic union would make markets more confident about future growth prospects -- essential for reducing high debt levels -- and so less likely to react negatively to setbacks such as a temporary increase in budget deficits.

"This means governing together, going from co-ordination to a common decisional process, from rules to institutions."

Unifying capital markets to follow this year's banking union would also make the bloc more resilient.

"How risks are shared is connected to the depth of capital markets, in particular stock markets. As a consequence, we must proceed swiftly towards a capital markets union," Draghi wrote."

The reason the ECB can't respond to shocks in individual countries is the same reason there's no ECB QE, it's illegal for the central bank to finance sovereign country's debts, which is what sovereign bond buying is. The point I think he is clearly making is, without the reforms putting the union under greater centralized power would also come with the reforms to the ECB's chart to allow QE, thus the point about not being able to react to specific country's price shocks.

While I'm sure the countries in the North like Germany would love to gain greater control over sovereign nations in the EU, at the same time I'm not so sure the country that essentially is the EU, will ever support QE, however this seems like a ploy by Draghi to give Germany what it wants, greater control over sovereign nations in the Euro zone, so Draghi can perhaps reach his own ends, reforming the ECB's charter under a new integrated monetary union.

Honestly with the situation in Greece and Syriza's (the anti austerity Greek political party) popularity as well as ground swell nationalistic movements in many of the PIIGS countries Draghi is talking about ceding their sovereignty, I think there's probably a reason these "structural reforms" that he's been talking about for years haven't gained any traction. 

I don't think Draghi could have picked a worse time with sentiment among Euro nations leaning so heavily toward nationalism, to put out such a blatant demand.

This is no doubt what caused the ramp in USD/JPY, however as with all Draghi jawboning, the half life is virtually nil at this point...

TF/Russell 2000 futures' parabolic ramp and the typical parabolic failure in to a 3C negative divergence and now a leading negative divergence.

It looks like things may be turning again, like we said yesterday, a brief respite for the market from yesterday's downside as well as the reminder that it was still "early in the day".