Lower TLTRO take-up expected on Thursday - RBS

FXStreet (Łódź) - RBS economists suggest that the TLTRO take up on Thursday will be lower than generally expected, leading investors to believe that the ECB policy will result in a smaller expansion of the central bank's balance sheet.

Key quotes

"While in reality we won't know for months until we've seen the second tLTRO and the ABS/covered bond purchase program, at the margin it should see investors adjust their expectations."

"A lower take-up can be seen in two ways. It depends on whether investors believe the ECB will ultimately cross its last red line of embarking on a sovereign QE programme."

"Because sovereign QE is such a contentious issue and is hence uncertain, the EUR may strengthen on a lower uptake."

"The view of European Rates Research is that a disappointing uptake means sovereign QE is even more likely."

"In line with this view, FX Trading Desk Strategy see the EUR continuing to fall over the coming year."

"However, uncertainty over the ECB's last red line means that we expect a short-term squaring of short EUR positions on a smaller than expected tLTRO take-up."