ECB meeting & EUR/USD scenario analysis (‘Cheat Sheet’ preview)

A European Central Bank preview and scenario analysis from ING — this is awesome!
More:  

  • survey indicators still point to a continuation of the recovery well into 2018
  • As inflation (expectations) remain low and clearly below the ECB’s preferred 2% level, strong growth will be essential for the ECB to publicly announce details of its tapering of QE for 2018

What this means for markets FX market: One-off move in EUR/USD higher followed by range trading

  • We look for a knee jerk reaction in EUR/USD higher, potentially testing the 1.20 level in response to the expected cut in QE from €60bn to €25bn per month.
  • Yet the lower for longer QE anchoring the scale of Bund sell-off and Italian elections in early 2018, suggest only ‘one-off’ EUR/USD upside.
  • We look for the cross to range-trade in coming months and only spike higher in 2Q18 once Italian election risk passes

—Earlier previews:

  • Barclays expect President Draghi to announce a nine-month extension of the APP at a lower pace of EUR30bn per month
  • Morgan Stanley outlook for the ECB meeting this week and BoE next
  • UBS on what to expect from the ECB this week

and

  • What will EUR/USD do when the ECB announce their ‘taper’?

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