ECB: “Didn’t Discuss Anything Else” – TDS

Research Team at TDS, notes that the ECB left both interest rates and the scope of its asset purchase program unchanged.

Key Quotes

“Draghi told us that “the Governing Council tasked the relevant committees to evaluate the options that ensure a smooth implementation of our purchase programme,” but said that the GC itself did not discuss extending APP at all, underlying the hawkish tone to yesterday’s meeting.

We still look for further ECB easing before the end of the year, likely including a –10bs cut to the deposit rate, a 6-9 month extension of QE, and for the deposit rate threshold to be dropped in order to deal with the bund scarcity issue.

FX Strategy

As a result, this month’s ECB meeting did not leave currency investors with much to sink their teeth into. With moderately hawkish undertones, the path of least resistance for the EUR is likely to be (moderately) higher, at least for the very near term. This is particularly the case, we think, with respect to the USD where a string of disappointing US data releases has left the market less enthused over USD longs.

For EURUSD, our focus remains on the 26 August high at 1.1340 as the primary attractor to the topside against support around 1.1270. EUR bulls may find greener pastures against the GBP, however, where this week’s low at 0.8334 may be a trough for this cycle.

While sterling has benefitted from some better-than-expected data over the last several weeks, we think its string of good luck may be coming to a close. The GBP may have seen a near-term bounce on the back of post-Brexit position squaring, but sterling’s medium-term risk profile leaves considerable room for concerns.”