4 Dec 2014
Today’s ECB meet might increase risk in the market – TDS
FXStreet (Barcelona) - The TD Securities Team notes that today’s ECB meeting could have a number of moving parts that provide substantial risks to the market, and sees a 80% probability that ECB will not broaden its asset purchases at this meeting.
Key Quotes
“Today’s ECB meeting could have a number of moving parts that provide substantial risks to the market, though delivering sovereign bond buying sooner than expected would obviously dominate if it appears.“
“We do think there is at least a 20% chance that the ECB broadens asset purchases at this meeting in some way, but we expect as a base case that the ECB will reinforce a lower EURUSD by increasing the active language in the statement and being very explicit in the Q&A, but still hold off on any new bond purchases at this time.”
“This is the last meeting for the ECB to address maturing LTROs in January and February, so they could be inclined to roll those over in new LTROs, which could help with a lower EUR as well as help Euribors rally. Draghi will also have to explain why he is not acting at a meeting in which we see downgrades across their GDP and inflation forecasts after just a week ago saying they must look to act “without delay.””
“He is also likely going to have to clarify in the Q&A whether the ECB agrees with some suggestions in the market that they need to move the deposit rate back to zero as a negative rate would be incompatible with broader QE.”
“And this meeting could see the ECB tweak the terms of next year’s TLTROs. So a number of moving parts, and while we will wait for the message to firm up our own expectations, March is looking like a likely date for the ECB to announce broader asset purchases, especially if December’s TLTRO disappoints and oil falls further as we expect. If Brent crude were to average $65 or less in the coming months that would likely see Eurozone HICP turn negative.”
Key Quotes
“Today’s ECB meeting could have a number of moving parts that provide substantial risks to the market, though delivering sovereign bond buying sooner than expected would obviously dominate if it appears.“
“We do think there is at least a 20% chance that the ECB broadens asset purchases at this meeting in some way, but we expect as a base case that the ECB will reinforce a lower EURUSD by increasing the active language in the statement and being very explicit in the Q&A, but still hold off on any new bond purchases at this time.”
“This is the last meeting for the ECB to address maturing LTROs in January and February, so they could be inclined to roll those over in new LTROs, which could help with a lower EUR as well as help Euribors rally. Draghi will also have to explain why he is not acting at a meeting in which we see downgrades across their GDP and inflation forecasts after just a week ago saying they must look to act “without delay.””
“He is also likely going to have to clarify in the Q&A whether the ECB agrees with some suggestions in the market that they need to move the deposit rate back to zero as a negative rate would be incompatible with broader QE.”
“And this meeting could see the ECB tweak the terms of next year’s TLTROs. So a number of moving parts, and while we will wait for the message to firm up our own expectations, March is looking like a likely date for the ECB to announce broader asset purchases, especially if December’s TLTRO disappoints and oil falls further as we expect. If Brent crude were to average $65 or less in the coming months that would likely see Eurozone HICP turn negative.”