22 Jan 2015
Welcome to ECB day - Westpac
FXStreet (Bali) - Sean Callow, FX Strategist at Westpac, discussed the possible policy action taken by the ECB later today, with expectations of a full-blown QE running high.
Key Quotes
"The Asian calendar offers little distraction ahead of the eagerly awaited ECB decision. At 1:45pm CET, a brief statement will confirm the key interest rates and may also refer to non-standard monetary policy measures being adopted but offer no details. So the main game should be the press conference at 2:30pm Frankfurt, for the very widely expected announcement of large scale QE to buy sovereign bonds (and perhaps also some high-rated corporate bonds). The internal debate looks to be continuing right up to the meeting, with a range of options on the table."
"Most likely is a program to buy a set total of assets, mostly sovereign bonds, with EUR500bn the low end of the plausible range, EUR750bn a neutral outcome and EUR 1 trillion or above a clear upside surprise. However, given the range of forecasts now in the market, the initial response could be to take profit on EUR shorts, at least judging by Wed’s price action. We would be inclined to sell any such rallies, given that (a) if the program is announced at 12 months, “only” EUR600bn then soon enough markets will expect it to be extended (QE programs tend not to achieve their goals in just one year) and (b) Syriza is still ahead in Greek polls, setting up for renewed EUR selling on Monday."
Key Quotes
"The Asian calendar offers little distraction ahead of the eagerly awaited ECB decision. At 1:45pm CET, a brief statement will confirm the key interest rates and may also refer to non-standard monetary policy measures being adopted but offer no details. So the main game should be the press conference at 2:30pm Frankfurt, for the very widely expected announcement of large scale QE to buy sovereign bonds (and perhaps also some high-rated corporate bonds). The internal debate looks to be continuing right up to the meeting, with a range of options on the table."
"Most likely is a program to buy a set total of assets, mostly sovereign bonds, with EUR500bn the low end of the plausible range, EUR750bn a neutral outcome and EUR 1 trillion or above a clear upside surprise. However, given the range of forecasts now in the market, the initial response could be to take profit on EUR shorts, at least judging by Wed’s price action. We would be inclined to sell any such rallies, given that (a) if the program is announced at 12 months, “only” EUR600bn then soon enough markets will expect it to be extended (QE programs tend not to achieve their goals in just one year) and (b) Syriza is still ahead in Greek polls, setting up for renewed EUR selling on Monday."