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According to Tim Riddell, senior market strategist at Westpac, the slashing of ECB forecasts and the proactive initiation (still to be detailed) of further TLTROs underscore the persistent need for extraordinary accommodation within the Eurozone.

Key Quotes                

“The ECB has additionally extended the potential of an end to its Negative Interest Rate Policy (NIRP) into next year.”

“Markets are likely to focus on interest rate differentials favouring US and so maintain a EUR downside bias. However, the purpose of ECB’s policy accommodation is to bolster vulnerable sentiment and expectations. ZEW’s Eurozone expectations and EC’s regional consumer confidence have shown tentative signs of basing and an upturn could at least limit the downside should EUR/USD break below 1.1250.”

“In the interim, UK’s inability to agree a Withdrawal Agreement is likely to cloud sentiment into the EU Leaders’ Summit (21st-22nd) and also raise political concerns around the forthcoming elections for the EU Parliament (18th-23rd May).”

“EUR/USD rebounds should be capped in the low 1.14s with rate differentials likely to drive a redefining of recent lows in the 1.12s.”