Ok, so let me get my two-penny worth out the way first
The BOE will continue the stance it has taken since the last change 5 years ago ( Happy Birthday for yesterday) and today will see no changes to rates or QE and no statement.. Not a difficult call that one. The pound will stay in range trading mode with GBPUSD 1.6650-1.6750 with current scenario. One eye on the ECB as always for EURGBP to kick off and out of its 0.8185-0.8235 range. 0.8150-8250 0n the wide touch
The ECB potentially could deliver a small cut to the refi, maybe 10bp, and allude to negative depo rates given all the headlines on that from various council members over the past couple of weeks, but I agree with Ryan that Draghi’s buying of time may have put paid to any real need for action this time around. EURUSD levels to watch are 1.3695, 1.3650-30 on the dip and 1.3800-25 on the rally.
And here, courtesy of EFX, are what some of the bank analysts are calling for:
GS: Our European Economics team do not expect additional easing from the ECB, a view that was reinforced by last week’s higher-than-consensus HICP reading for February. That said, there is still a possibility that the ECB could ease possibly via an end (or a reduction) in the sterilization of SMP liquidity, in the context of the unveiling of the 2016 inflation forecast.
BofA: In our view, the ECB is not ready to fire a “bazooka” in this week’s meeting, despite very low inflation and rising deflation risks. We expect a marginal forecast revision with inflation close to target in 2016, accompanied by a dovish and concerned statement. We also expect measures to strengthen forward guidance
Citi: Citi economists expect the ECB to cut the main refi rate by 10-15bp and present downwardly revised inflation forecasts that would signal scope for more easing ahead.
Barclays: Last Friday’s above-consensus inflation print removed some of the near-term pressure on the ECB and the market reacted by reducing shorts and discounting any likely policy action. Our economists continue to expect it to ease further by cutting both refi rate and deposit rate as inflation is likely to stay at about 1% until the end of 2015, although it will be a very close call. Ending the sterilisation of the SMP program (or at least hinting at such a measure) is also a possibility. If our expectations are met, we would expect the EUR to come under modest pressure as front-end rates adjust
Morgan Stanley: Our economists are expecting the ECB to cut the refi-rate by 15bp which supports our bearish view
BNP Paribas: We think Thursday will be a big day for EUR bears, with the ECB likely to deliver significant policy easing measures, weakening the currency. Our economists expect a 10bp cut in the repo rate and also see greater than 50% chance that this is accompanied by a cut in the deposit rate into negative territory. We also expect measures to improve money market liquidity, most likely a decision to end sterilization of the SMP portfolio
Credit Suisse: We think that Draghi will announce: (i) a 2016 inflation projection of around 1.6%; (ii) no change in interest rates; and (iii) ending the sterilization of SMP purchases. We would anticipate very limited impacts on the euro under that base case – perhaps a very small euro depreciation to the extent that SMP action is not fully priced.
Credit Agricole: We expect the ECB to cut its main refinancing rate by 10bp as staff forecasts will reflect below-target inflation over the medium-term. Alternatively, a suspension to SMP sterilisation could appear as a good compromise…Draghi could hint at contingency plans in case deflation risks are seen as rising, including a possible discussion on asset purchases
And one last reminder from me. As always, trade what’s in front of you and leave logic to one side. It’ll only make your head, and perhaps your wallet, hurt if not.
