ECB to see balanced growth risks but keep unbalanced guidance - TDS

Analysts at TDS are looking for the ECB to keep rates and the planned pace and duration of QE unchanged at this week’s meeting.

Key Quotes

“What will be watched more closely is the ECB’s language around the risks to growth and the easing bias and forward guidance around rates and QE. Here we look for the risks to the growth outlook to be upgraded to broadly balanced, in line with 90% of other analysts surveyed, but we look for the easing bias on rates and QE to remain in place, whereas about half of all analysts are looking for the ECB to drop the easing bias on rates.”

“We also look for the ECB to stick with the forward guidance on sequencing as previously laid out, that rates will not rise until “well past the horizon of asset purchases.” This should leave a dovish tone as markets remove some of the rate rises that are priced in for 2018.”

“While positioning suggests rates would have an easier time responding to a hawkish message, we think a lack of change to rate guidance should send bund yields back to the lower end of the range.”

“EURUSD looks notably vulnerable to a near-term correction lower as it heads into this week’s ECB meeting. Valuations look stretched and some indicators are pointing to overbought conditions. We see downside risks of up to 2%, but we remain medium-term bulls on the EUR overall.”