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5 Jan 2015
ECB prepares for QE, EUR/USD under pressure - ANZ
FXStreet (Bali) - Last Jan 2nd, ECB President Draghi gave the strongest indication yet that the ECB will announce QE on January 22nd, notes ANZ, adding that in order to be effective, QE would probably have to be EUR500-750bn.
Key Quotes
"Our guess is that the market may want to see a programme size of around EUR500-750bn, otherwise it may be disappointed. It could also be effective if the ECB did not give a specific target. An advantage of this approach would be to leave open the upside for purchases and avoid possible disappointment by announcing a specific target. The expectation of QE has been unsupportive for the euro against the USD and has added to the decline in the currency since the introduction of the negative deposit rate. The combination of ECB policy settings, Greek political uncertainty, a fragile recovery and the contrast with the US all point to a lower EUR/USD for now."
"Much of this is priced in and in trying to anticipate the possible extent of further euro depreciation, it is worth remembering that inflation and inflation expectations lie at the crux of ECB policy initiatives today. The trend in EUR/USD has been closely correlated with the trend in the oil price and is likely to remain so for the foreseeable future. Inflation expectations are also a major focus of ECB policy and EUR/USD should also remain closely aligned with the shape of the euro area yield curve."
Key Quotes
"Our guess is that the market may want to see a programme size of around EUR500-750bn, otherwise it may be disappointed. It could also be effective if the ECB did not give a specific target. An advantage of this approach would be to leave open the upside for purchases and avoid possible disappointment by announcing a specific target. The expectation of QE has been unsupportive for the euro against the USD and has added to the decline in the currency since the introduction of the negative deposit rate. The combination of ECB policy settings, Greek political uncertainty, a fragile recovery and the contrast with the US all point to a lower EUR/USD for now."
"Much of this is priced in and in trying to anticipate the possible extent of further euro depreciation, it is worth remembering that inflation and inflation expectations lie at the crux of ECB policy initiatives today. The trend in EUR/USD has been closely correlated with the trend in the oil price and is likely to remain so for the foreseeable future. Inflation expectations are also a major focus of ECB policy and EUR/USD should also remain closely aligned with the shape of the euro area yield curve."