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Chances for an announcement of QE in the euro-zone seems more than imminent after the zone slipped into deflation.

Is the move already priced in? The focus now moves to the size of the program. The team at BTMU explains the critical  number  for the ECB and EUR/USD and provides price targets:

Here is their view, courtesy of eFXnews:

The 11.8% depreciation of the euro versus the dollar in 2014 was the largest since the 12.6% decline in 2005, notes  Bank of Tokyo-Mitsubishi (BTMU).

ECB QE On Jan 22.

“We were somewhat surprised by the degree of euro selling into the end of 2014 fuelled in part by the increased expectation of sovereign debt QE by the ECB. We like most in the market expect the ECB to announce a QE program at the next meeting on 22nd January,” BTMU projects.

A EUR 500bn Program.

We now expect a sovereign debt QE program of at least EUR 500bn to be announced in January. At least that amount is required in order to expand the balance sheet to the EUR 3trn level reached in early 2012,” BTMU adds.

EUR/USD Selling….

The greater the QE sum is above the EUR 500bn level, the greater the scope for further EUR/USD selling,” BTMU argues.

Political Uncertainty Matters Too…

“The added political uncertainty at the outset of 2015 mixed with the high probability of the launch of sovereign debt QE will result in a further weakening of the euro. We show a bias for a more pronounced weakening in the first half of the year as US market interest rates finally respond to pending FOMC tightening,” BTMU adds.

Forecasts:

BTMU sees EUR/USD at 1.15 in 6 months and 1.12 by the end of the year.

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