Richard Kelly, Head of Global Strategy at TD Securities, notes that the ECB not only decided to surprise on the volume of measures today but also in the timing for announcement. Key Quotes “Rather than announcing the rate decision only at 12:45GMT and wait 45 minutes for the fuller list of measures, they have given us that full list all at once. The ECB has decided: • As expected cut the deposit rate by 10bps • Surprisingly they have cut the refi rate by 5bps to 0%. That is less consequential but a tip of the hat to doing everything the can on rates and making liquidity a little cheaper. • Surprising they have increasing QE by 20bn to €80bn per month, the upper end of expectations. • Surprisingly, they have added IG corporate bonds to the mix to give them more assets to buy and direct more liquidity directly to the markets and around the banks • Surprisingly, they have announced four new TLTROs, but unlike the current vintage which all mature September 2018 regardless of inception, these are all fixed 4y terms, increasing takeup. And as we were arguing, these are no longer at refi, but will be offered at the deposit rate, so our NLTROs (negative rate LTROs). So this is a bigger benefit to banks and risk sentiment. The ECB has managed to deliver a decision which while seeing rate expectations somewhat higher on the day given the interest rate side was as expected, they have boosted risk appetite and helped banks, so risk is currently driving EUR lower and giving the positive impression. For the press conference, our takeaway from here is: • It should all generally be sentiment unhurt or a message of rates lower from Draghi’s message, further reinforcing risk appetite. The assumption in markets right now is there is no tiered interest rate regime or deposit rate floor removed, otherwise they would have announced this. • If they announce a removal of the deposit rate floor, rates will go lower and take EUR lower. • If they announce the tiered interest rate regime, they likely announce rates will be lower still (though the risk of Eonia squeezing higher is there if they mess that up), but again, probably rates lower and EUR lower, but risk neutral unless they mess it up. The press release on TLTROs being “as low as the deposit rate floor” suggests there is some new mechanics coming, perhaps implying tiering is yet to come. • Most important for us will be whether they leave the forward guidance line in the statement that rates will remain “at present or lower levels.” If that is there, rates go lower and risk is supported. So overall, the ECB delivered on our bigger than expected expectation and also confirmed the difficulties for positioning for the trading opportunities ahead of time, give the “risk on, rates higher” reaction at first here. But European banks and risk appetite should be able to draw a sustained move from this, at least into the Fed, pending whatever last tweaks the ECB has in store for the press conference.” For more information, read our latest forex news.