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Analysts at TD Securities explained that as broadly expected, the ECB left its policy unchanged today, confirming that QE will taper to €15bn/mo starting in October.

Key quotes:

“The Governing Council said that it anticipates that QE will end after December 2018. Other guidance remained unchanged, with rates to remain at their current levels through summer 2019, and reinvestments to continue as long as necessary.”

“The ECB downgraded its growth outlook a notch in both 2018 and 2019 as we expected, but left its inflation outlook intact. Importantly, the Governing Council continued to characterise risks around the forecast as broadly balanced, though it acknowledged higher downside risks from trade protectionism and EM volatility.

  • FX: We think this month’s ECB meeting adds to an increasingly-bullish backdrop for the EUR as the USD’s summer rebound looks exhausted. A more positive macro, policy, and technical picture has us looking for further gains in coming weeks. Given the highly uncertain global landscape, however, we prefer positioning via shorter-dated calls or (zero cost) risk reversals.
  • Rates: Following today’s ECB meeting, we remain comfortable with our steepening bias for the EUR curve. We continue to recommend our 4y1y-1y1y EUR (or ERM9-ERM0) Steepeners and 5s30s Bund Steepeners in our trade portfolio. In cross-market, we express the normalization of the ECB’s monetary policy via our UST vs Bund compression trades.”
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