Back
13 Apr 2015
ECB QE 2 more likely than not – BAML
FXStreet (Barcelona) - Strategists at BofA-Merrill Lynch, expect policy divergence and ECB’s QE commitment to drag EUR/USD to parity by year-end, and add that a second QE by the ECB is very likely next year.
Key Quotes
“We expect the ECB’s strong commitment to continue with QE despite improving data to be negative for the euro. This is consistent with our view that divergence of monetary policies will gradually weaken EUR/USD to parity by the end of the year.”
“The ECB has announced optimistic macro projections, which we see as targets, justifying QE at least until September 2016 even if data improve further. Whether EUR/USD weakens well below current levels will depend to a large extent on whether the market starts expecting QE2 by the ECB next year.”
“It is too early to make this call, but our economists believe ECB QE 2 is more likely than not based on their inflation projections.”
“We expect further EUR/USD weakening in the months ahead, but more gradual and more volatile than in the recent trend.”
“After being the only central bank to treat the drop in inflation as a temporary shock from the collapse of oil prices, the FED has finally expressed concerns about the strong USD, stopping the strong upward trend. However, the market seems to be taking advantage of the USD dip to buy again.”
“Moreover, central banks continue diversifying away from the euro in their search for positive yield.”
“As our first Big Picture theme argues, cheap EUR funding is attracting foreign corporates, helping weaken the euro.”
“We are also concerned about negative scenarios in Greece, which could trigger further EUR downside.”
Key Quotes
“We expect the ECB’s strong commitment to continue with QE despite improving data to be negative for the euro. This is consistent with our view that divergence of monetary policies will gradually weaken EUR/USD to parity by the end of the year.”
“The ECB has announced optimistic macro projections, which we see as targets, justifying QE at least until September 2016 even if data improve further. Whether EUR/USD weakens well below current levels will depend to a large extent on whether the market starts expecting QE2 by the ECB next year.”
“It is too early to make this call, but our economists believe ECB QE 2 is more likely than not based on their inflation projections.”
“We expect further EUR/USD weakening in the months ahead, but more gradual and more volatile than in the recent trend.”
“After being the only central bank to treat the drop in inflation as a temporary shock from the collapse of oil prices, the FED has finally expressed concerns about the strong USD, stopping the strong upward trend. However, the market seems to be taking advantage of the USD dip to buy again.”
“Moreover, central banks continue diversifying away from the euro in their search for positive yield.”
“As our first Big Picture theme argues, cheap EUR funding is attracting foreign corporates, helping weaken the euro.”
“We are also concerned about negative scenarios in Greece, which could trigger further EUR downside.”