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30 Nov 2015
EUR: ECB easing expectations building up strongly - MUFG
FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, suggests that the euro continues to remain under downward pressure heading into this week’s ECB policy meeting on easing expectations.
Key Quotes
“It has already fallen sharply over the last month as market expectations for more aggressive ECB monetary easing have been building. We do not expect the ECB to disappoint market expectations for more aggressive monetary easing at this week’s meeting justifying a weaker euro.”
“The ECB staff’s economic forecasts are set to downgraded delaying the projected timing of when inflation is expected to return back to their target. The ECB have been very clear that they will tolerate another delay which would increase the risk that inflation expectations will become unanchored justifying a forceful policy response to help bring inflation back to target more quickly.”
“For the ECB to meet or even exceed market expectations it will have to increase monthly asset purchases and extend into 2017, and lower the deposit rate by more than -0.10 percentage point. We also expect President Draghi to send a strong signal to the market that it is prepared to lower rates even deeper into negative territory if required ahead.”
“It should prove enough if delivered to drag EUR/USD to new cyclical lows before year end. Speculative short euro positions have already been increased sharply ahead of this week’s meeting. Some lightening of short positions could take place after the ECB meeting and in advance of the latest non-farm payrolls report on Friday and FOMC meeting on the 16th December which could result in some temporary relief for the euro. The consensus expectation is that the FOMC will deliver a “dovish” rate hike in December emphasizing only gradual tightening ahead.”
Key Quotes
“It has already fallen sharply over the last month as market expectations for more aggressive ECB monetary easing have been building. We do not expect the ECB to disappoint market expectations for more aggressive monetary easing at this week’s meeting justifying a weaker euro.”
“The ECB staff’s economic forecasts are set to downgraded delaying the projected timing of when inflation is expected to return back to their target. The ECB have been very clear that they will tolerate another delay which would increase the risk that inflation expectations will become unanchored justifying a forceful policy response to help bring inflation back to target more quickly.”
“For the ECB to meet or even exceed market expectations it will have to increase monthly asset purchases and extend into 2017, and lower the deposit rate by more than -0.10 percentage point. We also expect President Draghi to send a strong signal to the market that it is prepared to lower rates even deeper into negative territory if required ahead.”
“It should prove enough if delivered to drag EUR/USD to new cyclical lows before year end. Speculative short euro positions have already been increased sharply ahead of this week’s meeting. Some lightening of short positions could take place after the ECB meeting and in advance of the latest non-farm payrolls report on Friday and FOMC meeting on the 16th December which could result in some temporary relief for the euro. The consensus expectation is that the FOMC will deliver a “dovish” rate hike in December emphasizing only gradual tightening ahead.”