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ECB preview: EUR/USD under pressure ahead of the meeting - Danske

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 7, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Analysts from Danske Bank expected a deposit rate cut of 10 basis point on Thursday from the European Central Bank and an increase in monthly purchases to 80 billion.

    Key Quotes:

    “We expect the ECB to announce another menu of monetary policy easing including a 10bp deposit rate cut together with an introduction of a two-tier deposit rate system and a front-loading of the QE purchases.”

    “The market reaction to this package is likely to be a small disappointment, but it depends on Draghi’s communication about the tools and the ECB’s forward guidance.”

    “On the FX side, we expect EUR/USD to be under pressure ahead of the meeting as the theme of Fed-ECB divergence lingers following the recent strength in US data and the build-up in ECB easing expectations. But, with the ECB set to disappoint somewhat, another move higher in EUR/USD should be expected following the meeting.”

    “In light of the high pressure on the ECB we see some risk that it will be more aggressive than we expect. This week, Draghi added to expectations as he stated the ECB has a ‘variety of instruments’ and ‘there are no limits on how far we are willing to deploy our instruments within our mandate to achieve our objective’. In our view, the ECB has plenty of tools, but they are not ready to use the controversial ones.”
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