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ECB expected to ease policy aggressively at next week’s meeting - MUFG

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 26, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, notes that the euro declined sharply yesterday following the release of a report from Reuters speculating that the ECB is discussing the introduction of two-tiered bank charges and a broader composition of asset purchases.

    Key Quotes

    “The report has further fuelled expectations for more aggressive easing to be announced at next week’s policy meeting weighing on the euro which continues to trade heavily despite having already fallen sharply over the last month. Our short-term valuation model is still signalling that there are downside risks for EUR/USD in the near-term estimating that it should be trading closer to the 1.0400-level based important fundamental drivers.”

    “The Reuters report stated that with little over a week to go before the ECB’s upcoming policy meeting that numerous (20) alternative policy options remain open from purchases bonds of towns and regions to introducing a two-tier deposit system. The two-tier deposit rate system would help to soften the impact on banks of a further reduction(s) in the deposit rate.”

    “It has fuelled expectations that the ECB could be considering a larger deposit rate cut than just 0.10 percentage point. The report resulted in yields on German two and five year bonds declining to record lows yesterday further undermining the euro. The report supports our expectation that the euro is likely to become even weaker with the ECB unlikely to disappoint.”
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