Credit Suisse: Mixed Signal, EUR/USD Rallies Post-Meeting A Long-Term Sell.
Our European economists expect the ECB to deliver new easing
measures, but also see a risk that the central bank will simultaneously
point to the possibility of tapering asset purchases in 2017. This type
of mixed signal is not easy to decipher, and much would depend on how
ECB chief Draghi explains decision making. In particular, a
poorly-explained move towards tapering would pose a risk of a European
"taper tantrum" and a potent EUR surge on the day. Still, if the ECB is
seen tapering enough to prompt EURUSD to push above its October lows
around 1.0860, the pair will be back in the ranges it traded before the
US election, which would likely require a material tightening in at
least longer-term US-euro area rate differentials to be justified. Given
that our economists doubt that core euro area inflation is likely to
push much beyond 1.0% in 2017, this would seem like jumping the gun to
us. As such we would see a move into a 1.09-1.12 range as representing a
longer-term sell level for EURUSD. On the other hand, if the ECB is
sufficiently dovish, EURUSD should resume its underlying downtrend.
Credit Agricole: Limited Room For ECB To Extend Dovish Expectations; EUR/USD A Buy.
The EUR has been broadly range-bound after rebounding from this
year’s lows. The main focus should turn to this week’s ECB monetary
policy announcement as a currency driver, especially as political
uncertainty is unlikely to increase further in the short-term. As
reported by “La Republica” yesterday morning Renzi may press for early
elections in January/February next year in return for staying in power
until then. However, according to President Mattarella early elections
are technically not feasible because changes would be needed to the
country’s election law. We remain of the view that EUR/USD is a buy.
Limited room of the ECB exceeding dovish expectations coupled with
speculative short positioning close to multi-week extremes should keep
the risk of further position squaring upside intact. This is especially
true should the Fed fail to consider a more than anticipated hawkish
Morgan Stanley: Justification For A Mild EUR Weakness Over The Meeting.
We believe the reaction of the EUR over the ECB meeting will
ultimately depend on the probability of tapering in the next 12m. In
particular, EURUSD will depend on the short end rate differential
between EMU and the US. Our more medium term view, beyond this ECB
meeting, is that we expect EURUSD to fall based on the rate differential
staying wide and broad USD strength. Our economist's assumption is that
the ECB will keep rates on hold at this week's meeting but add a 6m
extension to its QE purchase programme. Since the ECB will come back
with results from its committees on which QE constraints to relax,
investors may have to deal with a plethora of information over the press
conference, including new macro economic forecasts. Here are some
points we will be looking for as FX watchers and the potential impact it
would have on the EUR when taking each measure in isolation. We see
justification for the EUR to weaken mildly over the ECB meeting.
ANZ: Any EUR/USD Rallies Post-ECB Meeting Are Corrective And A Selling Opportunity
While there is a widespread expectation that the ECB will extend QE
past March 2017, there is a debate about what composition this might
take. The central case is that the current level of purchases (EUR80bn)
will be extended by six months. We know there is resistance at some
national central banks to everexpanding QE, so there is talk that
purchases could be scaled back (ie GBP60bn per month), but may be
extended for longer, or that QE could be reviewed on a quarterly basis
depending on how the path of inflation unfolds. The ECB could also alter
the mix of assets it buys (greater weight towards corporate bonds),
possibly change the rules preventing QE purchases of bonds yielding less
than the deposit rate, and tweak guidelines regarding the amount of an
issuance that can be bought. For this reason, the FX market is
anticipating a potentially volatile market around the ECB meeting. While
the current growth environment suggests there may be little need for
more stimulus, there is a reasonable argument to be made that current
momentum is dependent on maintaining existing monetary
stimulus....EUR/USD failed to break below 1.05 following the defeat of
the Italian referendum. We view rallies as corrective and selling
NAB: Binary outcome for EUR/USD From The ECB.
The ECB meeting Thursday continues to hold out the threat of a taper
for when the current QE program ends in March...Our central call remains
the ECB will leave this decision until March (possibly January) when
the markets backdrop may be less vulnerable, but there is a not
insignificant risk the governing council pushed through a taper in all
but name, perhaps limiting bond buying to a maximum of EUR80bn per
month. That being said and with the USD pulling back, the outcome still
looks binary; with EUR/USD rising to 1.10-1.1150 on an ECB taper or back
down and testing the post-election low around 1.05 if the ECB extends
QE in its current from past March 2017.
Barclays: EUR/USD Risks Are Asymmetric To The Topside; Sell Rallies
We expect the ECB (Thursday) to announce a time extension of its
asset purchase programme by six months at the current rate of
EUR80bn/month, along with necessary changes to the public sector
purchase programme technical parameters to ensure a sufficiently large
pool of eligible assets for purchase. This likely sits towards the
dovish end of market expectations. Indeed, a Reuters poll found that
while most economists expect a six-month time extension at the current
pace, 14 of the 54 survey respondents expected tapering this week.
Likely technical parameter changes include a removal of the yield floor
(currently linked to the deposit rate), a relaxation of the issue share
limit for non-CAC bonds and using the substitution option for Germany. A
relaxation of the issue and share limit for AAA-rated countries is less
likely. We do not expect purchases of bonds beyond 30-year duration,
and purchases are unlikely to shift from the capital key rule. While
EURUSD is likely to depreciate if our expectations of ECB action are
met, large netshort EURUSD positioning and technical support means a
less-dovish decision could result in a materially higher EURUSD. Indeed,
our leveraged and real money clients still hold a large cumulative net
short EURUSD position and technical support levels, in the form of
multi-year lows at 1.0458, are not far away. As such, short EURUSD
positions prior to the event are not compelling but we would look for
opportunities to initiate these following any material appreciation.
TD: EUR In A Very 'Precarious' Position; Upside Risk S/T But Primary Trend Is Lower.
We continue to target the 1.04 level in EURUSD for end-Q4, but a
hawkish outcome flags obvious upside risks to this view. A hawkish
outcome – even if unintended – has the potential to reverse the
downtrend seen in the pair since late September. Amplifying our concerns
is the current state of investor positioning. In the latest available
data, the leveraged account component of the IMM data maintained a net
short of 26.4% of total Open Interest. While this is not the most
stretched level ever seen, it is close to points where this investor
segment has covered outstanding shorts in the past. As noted previously,
however, we are a little more focused on upside risks for this pair –
at least for the near term. We continue to believe that the primary
trend is lower, and this is only likely to change on a particularly
hawkish ECB outcome, but the risks of an impending squeeze on existing
shorts looms large in our estimation. We think the 1.0851 level should
represent significant resistance to a move higher while 1.0817 is the
38.2% retrace level of the post-US election trading range. At the same
time, we note that 1.0909 (50%) and 1.1001 (61.8%) are also key
Fibonacci levels of this same range.
BofA Merrill: Room For Disappointment Or/And Profit Taking.
we see risks of weak forward guidance that could disappoint FX
markets. Recent headlines point to strong disagreements within the ECB
on what to do next. This suggests to us that extending QE again without
papering next year could be much more difficult, particularly if this
requires relaxation of the capital key. Our economists expect QE
extension without tapering this week, but Draghi may not be able to give
a strong message on the ECB commitment to QE for next year, making the
current QE extension less effective with markets. Markets could test the
ECB, as they did with the BoJ early this year. The initial EUR weakness
if the ECB extends QE without tapering this time may prove an
opportunity to buy, particularly if it triggers profit taking. Our
latest positioning analysis suggests that the market is short EUR/USD,
although not by as much as a year ago. This position could explain why
EUR has not followed the JPY lower during the USD rally last week making
it more difficult for the ECB to being the currency further down. Weak
ECB forward guidance could squeeze the short EUR position higher.
BTMU: EUR Resilience Unlikely To Persist Regardless Of ECB Outcome.
The need for the ECB to announce an extension in QE beyond March 2017
seems obvious to us. Even though the cyclical picture for the euro-zone
economy looks to be improving, more serious problems related to the
cohesion of the single market could be brewing. Given the escalated
political uncertainty, now doesn’t appear to be the time to signal an
end of ECB support that is clearly helping to stabilise financial
markets in the euro-zone. We do not expect the resilience of the euro to
persist whatever the outcome of the ECB meeting tomorrow.
BNPP: EUR/USD To Struggle To Extend Upside Much Beyond 1.08.
Our economists also note that in light of the ‘no’ vote, the
likelihood of the ECB announcing a scaling back of asset purchases is
now less likely at their meeting this Thursday, and that a change in
forward guidance in order to give some sort of signal to the markets
that QE cannot continue indefinitely in the current form is instead more
probable. We would expect EUR/USD to struggle to extend upside much
The big event of the week is Thursday’s ECB meeting when an extension
to ECB bond-buying is likely to be announced (but possibly without any
direct reference to how much they buy each month, hinting at tapering).
All in all, major EUR downside isn’t likely this month, but we do still
expect a move to parity between now and the French Presidential
elections as voter anti-establishment sentiment erodes confidence.
Goldman Sachs: ECB Meeting Holds 2 Questions For Markets.
For markets, this week's ECB holds two questions. First, will there
be a formal taper decision. Second, if there is no formal announcement
to this effect (our base case is for a continuation of the bond buying
program at an unchanged pace through late 2017), is the backdrop to the
Governing Council sufficiently caustic that President Draghi in the
press conference essentially signals that a taper will soon be coming.
We think markets will treat either outcome with little distinction.
EUR/$ would go up, perhaps substantially. As a result, we think markets
will put more weight on the tapering signal, rather than any kind of
program extension (which is subject to modification anyway). We think
this is no time to taper, simply because of the challenging inflation
dynamics in the Euro zone, in line with our European economics team's
assessment A premature taper, which a decision to this effect at this
meeting would certainly be, will only complicate the ECB's task of
getting the Euro zone out of lowflation and fundamentally banishing
UOB: ECB To Deliver The Consensus, A Mildly Bullish Effect On EUR/USD.
All eyes are on the ECB meeting today – policy decision at 8.45pm
SGT, followed by Draghi’s press conference at 9.30pm SGT. Expectations
are already running high for this meeting, with the one-day implied
volatility rising to 25.4%, the highest for a ECB meeting since March
where Draghi cut rates more broadly than the markets had expected and
increased the pace of bond purchases. Tonight, we expect the ECB to
deliver the consensus - announcing a six-month extension of its
asset-purchases program (APP) past its original due date in Mar 2017 at
the current €80 billion run rate, while keeping its key interest rates
unchanged. The extension, in our view, is likely to be complemented by a
move to improve the supply of eligible bonds, for example, the removal
or softening of the yield floor. We do not expect ECB to rush to taper,
earliest being some time in 2H17, provided the Eurozone economic
recovery continues and inflation (gradually) rises toward the ECB's
target of near to 2%. In all, we see a mildly bullish effect on EUR/USD.
That said, a move above Mon’s high of 1.0796 would not be surprising
although thick option-related offers near 1.0800 (€3.7b of 1.08 strikes
expiring today and tomorrow) may pose an initial hurdle.
SEB: ECB To Lean Towards The Dovish Side.
SEB expects: Rates unchanged QE extension by 6m, current pace of QE
(EUR 80bn/m) maintained. Remove deposit rate floor to ensure QE
implementation. ECB to lean towards the dovish side to avoid provoking a
further surge in yields. Q&A session. ECB to confirm downside risks
to growth, inflation and of its easing bias Repeat that ECB policy is
effective and that the focus is on policy implementation. Deny “ECB
taper” rumours, reiterate the ECB has the will, capacity and ability to
act. Repeat call for swift implementation of growth-supportive fiscal
policies and structural reforms. Potential market reaction: Largely
neutral, our expectations are broadly in line with consensus.
RBC: QE Extension And No Tapering In Sight.
The ECB faces a familiar trade-off when it meets later this week.
Despite recent rises in the headline rate, the inflation backdrop is
still weak and we do not anticipate that the new set of staff forecasts
will show a return to the ECB’s inflation target before 2019. Though the
euro area’s economic recovery will continue over the forecast horizon,
growth remains too weak to push underlying inflation firmly upwards and
risks to the outlook, particularly political risks, have intensified
since the last meeting in September. Given that backdrop, we expect that
the Governing Council will come out in favour of more easing in the
form of continuing its QE programme. But a lack of available bonds means
that the question of how they will achieve that remains. To extend the
QE programme until at least September 2017, we expect that the ECB will
water down the deposit rate floor – essentially allowing purchases below
the -40bp threshold thereby unfreezing the currently unavailable
assets. That should get the ECB towards a September 2017 threshold
(depending on assumptions) but not much beyond.
UBS: ECB to extend QE in its current form (€80bn monthly) by six months to Sept'17
According to our base-case scenario, the ECB will announce a
six-month extension of QE, from March to September 2017, with ongoing
purchases of €80bn per month; such a decision would seem broadly in line
with market expectations. While the new staff macroeconomic forecasts
for 2017-19 will form an important basis for the decision, we think the
members of the ECB Governing Council will have to take an even more
comprehensive view, evaluate the broader balance of risks, and ask
themselves whether the time is ripe for a reduction in monetary
stimulus. In this context, the GC will also have to consider the
implications of political events, such as the outcome of the Italian
constitutional referendum on 4 December and the sharp rise in global
bond yields which has probably led to an (unwelcome) tightening of
financial conditions in Europe. We currently expect the ECB to taper
after September 2017, perhaps over the course of one year. We do not
think ECB policy rates will be cut further, but rate hikes are unlikely
UniCredit: ECB To Preserving Monetary Accommodation Via Extending QE Beyond March 2017.
On Thursday, we expect the ECB to announce a six-to-nine-month
extension of QE beyond March 2017, at the present pace of EUR 80bn per
month. We also think that the central bank will raise the ISIN limit to
50% from 33% and switch to a more flexible definition of deposit-rate
floor, applying it to a portfolio of bonds rather than to each
individual security....The decision to keep buying assets at the pace of
EUR 80bn per month would be mainly intended to preserve the current
“very substantial degree” of monetary accommodation, at a time of
limited progress towards a “sustained adjustment in the path of
inflation consistent with the Governing Council’s inflation aim”. Any
other policy option, be it tapering or a one-step reduction in the
monthly purchases, would lead to tighter financial conditions, because
investors would (correctly) interpret such moves as deviations from the
ECB’s reaction function, possibly due to political reasons. As a matter
of fact, in the QE framework, it is the pace of monthly purchases that
sends the most powerful market signal. Therefore, any reduction in the
flow of purchases (say to EUR 60bn) would ultimately represent a net
tightening, even if the Governing Council were to try to offset this
with a long extension of the program (for example until March 2018).
Danske: Too Early To Expect An Announcement On Ending QE.
We expect the ECB to extend its QE purchases by six months to
September 2017 and maintain the EUR80bn monthly purchases. The
continuation of the QE programme should follow as inflation – despite
the outlook for an increase – is still not on a sustained path towards
the 2% target, which the ECB has defined as the condition for ending the
purchases. Lately there has been a lot of speculation on QE tapering,
but in our view it is too early to expect an announcement about ending
QE. Very prominent ECB members including President Draghi have
increasingly emphasised the lack of upward pressure on underlying
prices, which together with an expected considerable downward revision
to the ECB’s core inflation forecast, should convince enough of the ECB
members that it is too early to consider an end-of-easing. We expect the
ECB to publish an inflation projection which is close to the one from
September but not very optimistic on 2019. Especially the core inflation
outlook should be lowered, reflecting a lack of upward pressure on
wages due to slack in the labour market. For headline inflation, the ECB
is likely to project 1.2% in 2017, 1.5% in 2018 and 1.7% in 2019.
ABN AMRO: No Time For Taper; ECB To Extend QE To September 2017.
We expect the ECB to announce an extension of QE at the current pace
to September 2017 from March 2017. There has been some speculation that
the ECB may either extend at a slower pace (possibly for longer) or
possibly extend at the current pace for 6-months, but send some kind of
signal that tapering is likely thereafter. One of these options might be
attractive from the point of view of generating a wide consensus in the
Governing Council. However, it would not make too much sense as markets
would focus on the slower pace/future tapering signal rather than the
extension. This means the tightening of financial conditions that the
ECB would seek to avoid may actually be triggered by such an
announcement. For this reason, we expect an extension at the current
pace, with the ECB refraining from the t-word. The recent rise in bond
yields has helped to increase the eligible universe for ECB purchases.
However, the ECB would still need to change the rules of its programme
to further increase this universe if it is to make space for an
extension of QE. We think the ECB will likely drop the restrictions on
not being able to purchase assets below the depo rate and below a 2y
maturity. This seems the most straightforward option to us. The
Governing Council could also allow more flexibility for substitute
purchases, though we expect continued limited deviations from the
Nordea: ECB To Prolong QE Without Tapering For 6 Months.
We expect the ECB Governing Council to continue to ease monetary
policy at its meeting on 8 December and by doing so to distinguish its
policy further from the rising US yields. The main emphasis will be on
the asset purchase programme (APP) which we expect to be extended by six
months until end-September 2017 with the current monthly pace of EUR
80bn. The prolongation of the programme is likely to be coupled with a
message of being ready for even further extensions, if necessary. We
wouldn’t completely rule out the possibility that the ECB reduces the
target amount (and possibly extends by more than six months). However,
that move would almost inevitably be interpreted as a tapering signal
which we think the Governing Council wants to avoid. The fear of giving
such signals is especially strong at this point where the ECB wants to
distinguish its monetary policy from the rising rates in the US due to
different inflation outlook in the two economic areas. In order to be
able to run the programme efficiently, the ECB has to change its
technical parameters.... Regarding forward guidance, the ECB will likely
stick to the wording that rates are expected “to remain at present or
lower levels for an extended period of time, and well past the horizon
of our net asset purchases.” However, we do not expect any changes in
the central bank interest rates. Further moves deeper to the negative
territory would require a real threat of deflation to materialise which
is currently not the case.
Goldman: No Change, Little Action From The Meeting.
The ECB's Governing Council will meet on Thursday, January 19. In
line with the broad market consensus, we expect little action at the
meeting, based on the lack of market news since December. Specifically,
we expect key policy rates to be left unchanged, and no changes to the
Asset Purchase Programme (APP). We expect the introductory statement to
continue to describe risks to the growth outlook as skewed to the
downside, and that Mr. Draghi will resist any suggestion that recent
inflation data warrant the withdrawal of monetary accommodation.
Morgan Stanley: Staying Short EUR/USD* Into ECB.
We used the recent rally in EURUSD to add a short position to our
portfolio. Our arguments for a weaker EUR have not changed. In the
absence of further political integration, the ECB may have to remain
accommodative to support the struggling periphery even as the core
overheats. As EMU inflation shows signs of rising, real yields may
decline to weaken the EUR. The risk of rising populism with the upcoming
elections in the Netherlands, France and Germany will also be an
undertone for the currency. We'll pay particular attention to the ECB's
rhetoric on the recent upside surprise in inflation.
Nomura: No Change, ECB To Remain Guarded.
In line with an overwhelming consensus, we do not expect any changes
to the ECB’s monetary policy programme at tomorrow’s meeting. Instead,
we expect the focus to be on the Governing Council’s assessment of
macro-economic developments in light of some positive dataflow over the
past few weeks. Thanks in part to that dataflow, we now believe the
risks to the ECB’s (and consensus) forecasts for the growth and
inflation outlook have shifted to the upside. During the post-meeting
press conference, President Draghi will nevertheless probably
re-emphasise the ECB’s strong commitment to the existing monetary policy
programme by stressing some of the numerous downside risks that could
generate further instability for the region in the months ahead. In
terms of trades: we enter 10yr OLO vs short 10yr RFGB at 20bp targeting
10bp (stop 25bp), but also a tactical long 15yr BTP Mar-32 vs 10yr and
20yr at 10.5bp with a target at 0bp stop at 15b.
Credit Agricole: No ECB Surprises; Further Upside Into 1.09 A Selling Opportunity.
This week’s main focus will be on this year’s first ECB monetary
policy announcement. In line with consensus expectations we see limited
scope for ECB surprises. If anything, central bank President Draghi
should defend a more dovish stance in light of still muted core price
developments. As such he is likely to downplay the higher than expected
headline inflation, as confirmed by December CPI data. Such a stance is
fully in line with what he stressed previously. As long as higher
inflation is largely driven by base effects, upside risks to inflation
are likely regarded as muted. In an environment of stable investors’
central bank rate expectations it will be about external factors such as
risk sentiment to drive the currency. With risk sentiment more
unstable, some further EUR/USD upside risk cannot be excluded in the
short-term. However, from a broader angle we believe rallies into 1.09
should prove corrective and should still be sold.
SocGen: An Uneventful Meeting; Long USD & Walk Away.
We get a likely uneventful ECB meeting on Thursday, but it is still
likely to be a combination of renewed widening in yield differentials
and a ramping-up of nervousness ahead of the French elections which will
be the catalyst for renewed Euro weakness when that happens.The
choppiness of the most heavily traded pairs, like EUR/USD, USD/JPY and
GBP/USD, not to mention the recent moves in equities and bonds, is
making life difficult for anyone who doesn't just put positions in place
and walk away. Those who do just walk away are probably the ones still
long dollars, short Treasuries and waiting for President Trump to begin
his first hundred days in office.
RBC: ECB A Low-Key Affair.
The ECB Governing Council’s first meeting of 2017 should be a low-key
affair. The December decision to extend QE by nine months, dropping the
monthly pace to EUR60bn should largely set the ECB’s policy course for
this year. Although headline euro area inflation has recently increased
and is forecast to continue doing so in coming months, we fully expect
the ECB to choose to ‘look through’ the rise, which is being determined
primarily by energy price developments. So we expect little change, with
President Draghi again likely to emphasise downside risks to the
outlook and the lack of upward trend in underlying inflation, which will
allow him to ignore the early calls from some quarters for the ECB to
begin the process of normalising policy.
BNPP: ECB To Stick To The Plan; Staying Short EUR/USD Via Options.
On Thursday, the ECB press conference may note further improvement in
activity and reduced downside risks. However, our economists expect the
ECB to remain very wary of fueling premature speculation about an end
to QE. With the ECB emphasizing a preference for sticking with the plan
and ongoing asset purchases capping nominal rates, stronger activity
data in Europe is likely to keep real rates low, leaving the EUR
vulnerable. We remain positioned for EURUSD downside via a EURUSD ratio
put spread with KI (buy 1x 1.05, sell 2x 1.03 with 1.0150 KI) (14-Feb
SEB: ECB To Strike A Dovish Balance On Thurs; Market Neutral.
Having already mapped its monetary policy course for full 2017 at its
last meeting in 2016 (8 Dec), the ECB is most unlikely to deliver any
further policy adjustments at the upcoming, first Governing Council
meeting in the new year on 19 January. Markets will therefore focus on
the ECB press conference, in which Mario Draghi will deliver an update
on economic and monetary developments in the euro area over the past six
weeks. In order to avoid any diminution in the current amount of
monetary accommodation, we expect the ECB to strike a dovish balance and
dispel any taper speculation. Given the minimal bond and FX market
moves since the previous ECB meetings, we expect the outcome of this
week’s ECB meeting to be broadly market-neutral.'
BofA Merrill: Draghi To Be Dull; Sell EUR/USD On Any Bullish Reaction.
We think any hawkish statements that strengthen the EUR during the
Q&A could be an opportunity to sell EUR/USD again ahead of potential
fiscal stimulus in the US. EUR/USD has been a USD trade and weakened as
the USD rallied after the US elections. The EUR has not weakened with
respect to non-USD G10 currencies and has actually strengthened against
the JPY. The EUR remains at its early 2004 level with respect to non-USD
G10 currencies. Similarly, although the EUR/USD is down by 2.5% since
the December ECB meeting, the EUR is down only by 0.4% with respect to
non-USD G10 currencies. In real effective terms, the EUR is stronger
than in early 2015. And EUR/USD has corrected higher so far this year,
particularly in the last two weeks.
Barclays: No Change From ECB.
We expect no change in monetary policy stance at this week’s ECB
meeting. The challenge for the ECB will be to manage market expectations
as headline inflation increases in the coming 3-4 months, driven in
part by energy prices and the currency. We expect the weakness in
underlying inflation to persist in 2018, with core inflation improving
but still below 1.5%. Therefore, we think that QE will be needed in 2018
but at a reduced pace of c.EUR35-40bn in H1 and EUR15-20bn in H2.
Danske: ECB To Stay Dovish Despite Better Data.
We do not expect a hawkish stance from the ECB, although the latest
economic survey indicators have strengthened further and inflation has
risen above 1.0% for the first time in three years. President Mario
Draghi will most likely argue that the ECB does not react to a single
inflation figure, that the latest inflation gains are due primarily to
energy prices and consistent with the ECB’s inflation forecast – broadly
in line with last week’s comments from the hawkish executive board
member Yves Mersch. The higher inflation is good news for the ECB but it
seems clear that the underlying price pressure is most important and
here there are ‘no signs yet of a convincing upward trend’.
Deutsche Bank: A Patient ECB For Now.
Our central case scenario is a patient ECB. They should be reassured
by broadly unchanged ﬁnancial conditions after their decision to slow
the pace of QE.The ECB won’t feel challenged by the recent data..If
current data trends continue, the outright taper decision could
accelerate to June rather than September, but the latter is our
baseline. The key is whether inﬂation, especially core, is becoming more
likely to exceed ECB forecasts. Euro area headline inﬂation should rise
sharply in January and February, to 1.6% and 1.8% yoy respectively.
That said, mid-year is the earliest that the less convincing core
inﬂation will satisfy the minimum conditions for policy
tightening...However, the ECB won’t be afraid to change plans, if
necessary. If a "sustainable adjustment" in inﬂation is reached, we
don't think the ECB would hesitate to act, even changing the current
UniCredit: Constructive, But Still Dovish.
We do not expect new policy announcements when the ECB meets on
Thursday. Therefore, the monetary policy framework will remain the same
as announced on 8 December: EUR 80bn of monthly asset purchases until
March, with a slowdown to EUR 60bn per month in the remaining nine
months of the year. The current forward guidance, which indicates a bias
of the Governing Council (GC) for more, rather than less, asset
purchases, is likely to remain in place. ..We think that ECB President
Draghi will sound constructive, but dovish.
ANZ: ECB To Show Steady Hand.
The tone of this week’s ECB meeting may be more even-handed given the
improvement in euro area inflation and encouraging readings on
activity. Market chatter of an early end to QE seems premature,
however, given that core inflation is still way below target and there
is no evidence yet of a sustainable recovery in inflation. However, as
growth and inflation improve, it is natural to expect the ECB may not
have to announce additional policy measures.
UOB: ECB A Non-Event, EUR/USD In 1.0500-1.0715 Near-Term.
The first ECB meeting for the year tonight is likely to be a
non-event. Following the decision to extend its QE program up to Dec
this year at its last meeting, we do not expect much from the ECB this
round. The statement at the press conference could also remain roughly
unchanged, although the tone of the press conference could reflect a
stronger confidence inside the board regarding the economic outlook. In
all, we expect 1.0500 to 1.0715 in the near term.