EUR: what to expect from the ECB?
Tomorrow is the meeting and press conference of the European Central Bank (11:45 and 12:30 GMT).
Analysts at Morgan Stanley think that the market may have moved too far in pricing in further ECB accommodation this early. In their view, it’s too early ECB action this week, and the central bank won’t launch an outright QE.
Analysts at BMO Capital Markets give the following reasons explaining why the ECB won’t act on Thursday:
- The results of the first two TLTROs are still unknown, and it’s hard to justify more aggressive action in front of those first two auctions of liquidity.
- More progress towards structural reforms is needed from France and Italy.
- The results of the Asset Quality Review (AQR) aren’t due until early October.
- US rates and the USD are widely expected to rise further, and the ECB is likely waiting to see ‘when’ and ‘by how much’.
- The previous rounds of ECB easing are still feeding through and having an impact on excess liquidity and the front end.
According to BMO, not all members of the Governing Council may be in favor of QE, and if despite this fact Draghi manages to make quantitative easing look more likely, this will limit euro on the upside. The ECB’s president can also elaborate on the policy divergence between the Fed and the ECB. Still, the risk that the ECB disappoint EUR-bears this week is rather high, so BMO thinks that EUR/USD is a better buy in the $1.2950/1.3000 range, and a sell between $1.3250 and $1.3325.