ECB: Shift in guidance coming? - Westpac

The ECB’s “quiet period” has begun and market confidence for at least a shift in ECB guidance on 20th August appears to be extremely, possibly excessively, high, according to Tim Riddell, Research Analyst at Westpac.

Key Quotes

“Praet and Draghi have repeatedly stated that the need for accommodative policy remains, despite strength in Eurozone data and surveys, and a very gradual and cautious path of change. Although markets are focusing upon the strength of surveys and activity data, the ECB remains concerned about Eurozone’s 18% underemployment/labour slack.”

“Positioning is a key risk into the ECB’s meeting. Sept. remains the more likely time for genuine shifts in guidance. IMM non-commercial futures Euro positions (as opposed to net leveraged) are record long even though EUR/USD, EUR/JPY and even EUR/GBP and EUR/CHF remain within recent ranges.”

“EUR may be vulnerable to retracements as it pushes towards EUR/USD range (1.10-1.16) resistance.”