Ok, so the likelihood of the BOE doing any thing on interest rates is zero and, as my illustrious colleagues agree, the danger of any forward guidance revision is unlikely before next week’s inflation report, but there’s always a risk of a curtain raising performance from Carney before his ECB counterpart steps up to the plate.
And where there’s risk there’s opportunity as well as the customary caution required. So always expect the unexpected and prepare to trade accordingly once we know. Either way I stick with my bearish GBP view overall unless EURGBP gets slapped lower by Draghi & Co. In that case we should still see cable break the recent support at 1.6250 and head toward 1.6200 as EURUSD goes down the plughole but further advances lower should be limited until the dust settles.
So will Mr D surprise us with a rate cut later ? I would love to be contrarian and say yes but I think not.There’s no doubting however that, as we’ve pointed out before, the ECB is most certainly in between a rock and a hard place right now and indeed for months to come. Perhaps we see rates lowered by 0.15% today but it wouldn’t send a strong enough signal to the markets.
Expect stronger rhetoric of a dovish nature for his forward guidance to help curb the market’s deflation/disinflation fears and he could well point more specifically to monetary measures such as negative depo rates or putting the SMP steriliazation on hold, of which there has been much recent conjecture.
It’s tempting to go short of euros now ahead of it all given only the dovish options left open to the ECB but I back them to keep their powder dry for another month at least, with EM concerns giving them an added need for some tools left in their box should it all kick off again anytime soon ( likely in my opinion).
Dovish rhetoric will send the euro lower but remember that there is a huge natural global demand for the euro, rightly or wrongly, from ACB’s ( notably China) and others of which the SNB will of course be taking more than a vested interest should the euro crap out.
No point shouting out precise level predictions here because there are so many variables but either way we will see good two-way business.
Repeat after me.. go with the flow.