The ECB announced today the end of the purchase program. Markets generally traded within a narrow band, and today’s meeting does not alter our expectation of the ECB hiking rates in December 2019, noted analysts at Danske Bank. They see the EUR positioned for a rebound next year.
Key Quotes:
“The FX market saw little reaction on the confirmation to end the APP and the introduction of the so-called ‘enhanced’ forward guidance. However, EUR slid initially during the press conference on soft comments from Draghi on the balance of risks. Crucial for the EUR is the fact that forward guidance on rates remained time-dependent which means that rate hikes are not imminent; this, on the one hand, puts a lid on EUR strength near term.”
“The fact that reinvestments were linked to the first rate hike is a key hint that the next move from the ECB is higher policy rates which is in itself a hawkish signal and a key cue to the FX market that we are now exiting ‘crisis mode’ in the eurozone; this, on the other hand, puts a floor under EUR.”
“On the whole, today’s ECB messages do not change our view that EUR/USD is a range around 1.13 on 0-3M horizon with potential for a clear rebound mid 2019 into the 1.20s. We are long USD carry at present but positioned for a EUR/USD rebound beyond Q1.”
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