In the wake of the ECB’s QE announcement in January, market participants are not expecting the ECB to unveil any further policy initiatives in tomorrow’s meeting. However the meeting is still of prime importance to markets and key themes traders will be keeping an eye on are as follows:
- The ECB’s new staff macroeconomic forecasts
- Greece’s sovereign debt as collateral
- Further information on the technical details of QE.
The ECB’s new staff macroeconomic forecasts
With the ECB presenting it’s new staff macroeconomic forecasts this week, market expectation is for the Central Bank to lower its 2015 Inflation forecast whilst lifting its GDP forecast for 2016. This new macroeconomic forecast is going to be the first time that 2017 projections are included and will likely spur speculation on whether the ECB’s QE programme will run on longer than 2016.
Greece’s sovereign debt as collateral
After the interim compromise between the EuroGroup and Greece, The ECB is now going to have to discuss whether or not it will again accept Greek sovereign debt as collateral in its refinancing operations. It’s unlikely that the ECB will move quickly on this as doubts still remain about the reform commitments of the new Greek government, as such it is highly unlikely that the ECB will move to reinstate Greek sovereign debt as collateral in Tomorrow’s meeting.
Further information on the technical details of QE.
The issue surrounding further details on the ECB’s QE programme will also be of key concern tomorrow. There are still crucial unknown elements about the programme such as whether the Eurosystem will prioritise achieving it’s purchase targets over it’s desire to reduce price distortion. The answers to these issues will determine whether yields rise or decline after the initial few months of ECB purchasing
So Whats The Trade?…
The fact that the Euro has managed to survive the risk emanating from the Greek situation suggests that recent improved US economic data is more damaging to EURUSD than infact any concerns surrounding Greece. This theme is likely to develop further as Fed normalisation steals the limelight and so with the exception of any unexpected and significant ECB policy changes, EURUSD is likely to continue lower over the medium-longer term. Initial support is the Year-To-Date low, which price is currently threatening to breach
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