Eurozone: Weakness in the region - Westpac

Tim Riddell, senior market strategist at Westpac, suggests that immediately before the ECB policy meeting and the updates to their staff projections, the OECD highlighted the region’s weakness by lowering their forecasts: 2019 -0.8% to 1.0% and 2020 down -0.3% to 1.2%.

Key Quotes

“The weakening of Eurozone growth can surely no longer be seen as transitory. Markets now expect the ECB to endorse some form of pullback from the ending of their APP into 2019. The most likely vehicle for ECB to add liquidity is through Longer Term Refinancing Operations (LTROs) and possibly in a targeted form (TLTROs).”

“The initial roll back in global yields from highs seen in Q3 18 allowed the Bund-UST spread to support a lift in EUR/USD. As the supposed temporary weakness in the Eurozone has extended, the spread firstly stabilised and is now widening again as Eurozone yields to pull back across the curve. This is now weighing on EUR.”

“Failure of EUR/USD to move into the upper half of its 1.1250-1.1600 range leaves EUR at risk of redefining the low of this range.”