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ECB Preview: Euro to suffer without action on the PEPP or hints to lower rates

Yohay Elam, an analyst at FXStreet, sets out three scenarios for the European Central Bank’s (ECB) quantitative easing measures and its implacations for the EUR/USD pair, with a larger top-up better for the euro.

Key quotes

“Extra €250 billion: The most likely scenario is that the bank tops up the PEPP to a total of €1 trillion. That would send a message to markets that the ECB continues supporting the economy while not hurrying too much, as economies are already opening up. In this case, which has a high probability, EUR/USD would advance but probably remain within known ranges.”

“Going big, +€500 billion or more: To send a clear message to bond markets and also the constitutional court, Lagarde would push for raising the emergency fund by 66% to €1.25 trillion. This scenario has a medium probability. EUR/USD would rally on the unequivocal message from Frankfurt.”

“No action now: The ECB may express content from the current pace of lifting the lockdowns as COVID-19 statistics continue falling. That may trigger caution, waiting until the next meeting in July before acting. In this scenario, which seems unlikely, EUR/USD will probably tumble down.”

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