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Uncertainties of the ECB - TDS

FXStreet (Guatemala) - Analysts at TD Securities explained that the market reaction to this week’s ECB meeting revolves around the modalities of the ECB’s buying of ABS and covered bonds.

Key Quotes:

“We think the market is coming into this month’s ECB meeting with rather diffuse and low expectations of what they will have from these details, which should set the hurdle lower to have a positive surprise for risk”.

“This means more scope to reinforce a rising balance sheet and lower euro and tighter peripheral spreads by implication, but in general, this could be a more convoluted Governing Council meeting than most for trading reactions, especially in fixed income”.

“Thursday’s ECB meeting is the sequel to September’s extension of measures to move further into negative rates territory and further into a balance sheet targeting central bank. But after the excitement of last month, the details of how ABS and covered bonds will be bought seems to hold less allure in the market right now. There are numerous complications and technical details that will need to be decided. Rather than focusing on each individual one, we think the driving factor this month is whether the ECB provides a plan with enough scope and detail to once again convince the market that they are serious about expanding their balance sheet”.

“As long as that happens, EUR/USD can continue its decline and peripheral spreads can tighten”.

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