EUR: what's the ECB planning?

EUR/USD touched 1.2362 on Monday after the ECB President Mario Draghi hinted at more drastic easing measures on Friday. Then, however, the single currency strengthened to 1.2500 as expectations of immediate ECB action have declined.

Analysts at Mizuho Bank point out that last week the consensus was that the ECB would begin buying bonds in December. However, the consensus has changed this week. The ECB Vice President Vitor Constancio said on Wednesday that the regulator will be able to gauge whether it needs to start buying sovereign debt to stimulate the euro zone economy in the first quarter of next year.

According to the latest Reuters poll, economists still see only a 50% chance of sovereign QE from the ECB. Most economists believe other measures, already announced, from the ECB could have the desired effect. 30 of 43 economists say the ECB’s balance sheet expansion will be effective but take until the end of 2016 to reach Draghi’s 1 trillion euro goal. There’s no consensus on whether these measures will boost the economy. The next thing to watch is corporate bond buying: most economists surveyed expecting about 150 billion euro in purchases to be announced.

The ECB President will make another speech today at 11:30 GMT. Markets will expect that Draghi will try to push EUR lower. However, the ECB Council Member Jens Weidmann will speak later in Frankfurt: Weidmann opposed QE, so if he makes any comments they may support EUR.

KBC expects further consolidation within the 1.2358/1.2600 range. Still, UniCredit thinks that euro’s pullback above 1.25 will be short-lived and represent a selling opportunity.  


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