It’s ECB day: Will Draghi provide dovish hints? What is already priced in? These are the main questions.
After providing previews from Barclays, Danske and Goldman Sachs here are 3 scenarios from Credit Suisse:
Here is their view, courtesy of eFXnews:
Looking towards the ECB decision, Credit Suisse economics team expects Draghi to sound dovish, and doesn’t anticipate an explicit extension of the bank’s QE program until December.
Strategy-wise, CS global FX strategy team outlines three likely scenarios for EUR/USD following the decision and how to trade around each of them.
1. No policy/ guidance change (EUR bullish): “We would expect EURUSD to push into its August 1.15-1.17 range. This is an area that we would look to re-engage with downside structures. We see 1.15 as a critical level for the ECB and would expect a fresh wave of dovish commentary above that level which would result in heightened expectations for a December easing move,” CS projects.
2. Hints at QE extension in December (EUR neutral): “This is our base case scenario and one that we think is generally priced by the market. We would therefore view it as EURUSD neutral and expect the cross to maintain its recent range 1.11-1.15 range,” CS adds.
3. QE extended/ hints at more aggressive measures (EUR bearish): “In light of the various ECB speakers pushing back on expectations around tomorrow’s meeting, an extension of QE – or a hint at more aggressive measures (i.e., depo cut, increase in purchases) – would be EURUSD bearish. We think EURUSD could move quickly down towards our 1.10 3-month forecast. However, barring more clarity from the FOMC, we would not look to chase the cross below this level,” CS advises.
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