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27 Feb 2014
Flash: Can the ECB shock the euro? - Nomura
FXStreet (Bali) - Ahead of the March ECB meeting, Nomura Strategists provide their take, saying the key question is whether the Governing Council will be able to deliver a dovish surprise and shock the euro lower.
Key Quotes
"We believe that there are two realistic options for the ECB: A cut in the deposit rate, bringing it into negative territory or a liquidity injection, in the form of 'non-sterilization' of the ECB's SMP purchases. Our European economics team expects that the second option will be preferred by the ECB‟s Governing Council."
"A deposit rate cut, combined with a further reduction in the refi rate, by contrast, could surprise the market, and generate a clearer downward euro move, judging from the experience of other countries. According to a Bloomberg survey, only 8 out of 38 economists expect the ECB to cut rates at next week‟s meeting (two expect 10bp, five expect 15bp and one expects 25bp)."
"From a trading perspective, we don't think the risk-reward is attractive in positioning for the 'shock scenario'. This is especially the case since a 'less bad' CPI figure on Friday could delay easing further, and a 'no-move' outcome in March would actually be a meaningful strengthening impulse for the euro at this point."
Key Quotes
"We believe that there are two realistic options for the ECB: A cut in the deposit rate, bringing it into negative territory or a liquidity injection, in the form of 'non-sterilization' of the ECB's SMP purchases. Our European economics team expects that the second option will be preferred by the ECB‟s Governing Council."
"A deposit rate cut, combined with a further reduction in the refi rate, by contrast, could surprise the market, and generate a clearer downward euro move, judging from the experience of other countries. According to a Bloomberg survey, only 8 out of 38 economists expect the ECB to cut rates at next week‟s meeting (two expect 10bp, five expect 15bp and one expects 25bp)."
"From a trading perspective, we don't think the risk-reward is attractive in positioning for the 'shock scenario'. This is especially the case since a 'less bad' CPI figure on Friday could delay easing further, and a 'no-move' outcome in March would actually be a meaningful strengthening impulse for the euro at this point."