Today is Draghi Day. The ECB is set to make its decision and the scenarios are laid out. Where could the surprises come from? And beyond the ECB, what could move the euro? Here are three views:
Here is their view, courtesy of eFXnews:
EUR/USD: 2 Possible Surprises From ECB; EUR Positioning Into The Meeting – BofAML
Bank of America Merrill Lynch FX Strategy Research expects the ECB to extend QE by EUR30bn per month for 9 months, offsetting less QE with stronger forward guidance on rates.
“Markets already expect a dovish ECB, but we see two potential surprises.
First, if Draghi clarifies that what happens to QE after this week’s extension is not a given and that it will depend on the inflation outlook.
Second, more specific forward guidance, on both depo and policy rates, linking them to inflation….Any guidance linking depo rates to the inflation outlook could be seen as dovish by markets,” BofAM argues.
On the EUR front, BofAML notes that the market is going into the meeting slightly long EUR, but this position is not stretched.
“Positioning is not a constraint for the EUR to move in either direction. It will all depend on Draghi’s communication,” BofAML adds.
BofAML remains bearish and short EUR/USD* targeting 1.15 by year-end.
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EUR/USD: Where The ECB Could Surprise? Key Levels To Watch – NAB
NAB FX Strategy Research discusses EUR/USD outlook ahead of the ECB meeting on Thursday.
“We’re pretty much in with the crowd in expecting the current EUR60bn per month APP being cut to EUR30bn, which we think the ECB will want to ‘run until the end of September 2018, or beyond’. We’ve had the September timeframe for around a year now,” NAB projects.
If the ECB is to surprise, where would such a surprise come from?
“1- A Statement line and/or Draghi press conference comments that presses the point the ECB really might carry on buying assets into 2018 (e) would be seen as more dovish than expected.
2- Equally a hard ending of QE buying in June 2018 would be hawkish.
3- Anything that suggest the negative Deposit Rate could be tinkered with during 2018, will equally be seen as hawkish in a way that could have more of a market reaction,” NAB argues.
On EUR/USD, NAB expects the pair to hold a 1.1675-1.1875 range short-term.
EUR/USD: Beyond ECB: Politics May Not Halt EUR Appreciation – Nomura
Nomura FX Strategy Research maintains its bullish view on EUR beyond the ECB meeting this week, arguing that European politics will be less important for EUR trading.
“Political developments in two major periphery countries, Italy and Spain, are the main focus at the moment. Nonetheless, we see three reasons for a less significant EUR reaction than occurred ahead of French election (especially against JPY and USD):
1) apparently much lower EUR sensitivity to peripheral spreads, 2) higher EUR sensitivity to rate spreads and data as the ECB prepares to start policy normalisation, and 3) much smaller exposure to Spanish and Italian bonds outside the euro area,” Nomura adds.
“Thus, we recommend maintaining an EUR bullish bias,” Nomura concludes.
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