Eurozone Status Check

The ECB bond buying program, assuming it is fully activated, will reduce troubled sovereigns'
borrowing costs across the yield curve and strengthens banking and insurance sector balance sheets.
Although it will be fully sterilized on a documentable basis, the program will add liquidity to the EZ financial system via reduced capital outflows and eventually via money multiplier effects within the
banking system. It is not a robust QE program, but it will nudge recovering EZ liquidity along further.
The three year maturity limit on ECB purchases reduces the bank's interest rate risk, but balance
sheet quality will suffer with the purchase of riskier assets. It will have the Fed to backstop it
during critical periods. The program is but one of a long line of steps that will be required to keep
the EZ intact, and the time it took to get the program and the restrictions on QE testify to how
difficult and long the road ahead toward refurbishment of the EZ will be.

There was further erosion of the EZ economy in Aug., and with liquidity and confidence in the
system low, this should come as no surprise.

The Euro 350 iShares index has been rebounding and is up toward important resistance just as
the Euro market is getting overbought short term. As of today, the market remains in a post
cyclical bear event trading range, which highlights the importance of testing resistance ahead.
IEV 350 Chart

Markets players in the US are growing more weary and discouraged by the glacial pace of
reform in the EU / EZ. I still remain hopeful that more progress can be made although there is
no light at the end of the tunnel yet.