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Market attention in Draghi's press conference - Westpac

FXStreet (Bali) - Sean Callow, FX Strategist at Westpac, shares his thoughts on today's ECB metting, noting that President Draghi’s press conference will be the main market interest, after the ECB having reiterated that the refinancing rate will not be lowered from 0.05%.

Key Quotes

"The ECB Governing Council meets in Naples today. The market interest is not in the rates decision, where the ECB insists the refinancing rate will not fall further from 0.05%, but in President Draghi’s press conference."

"At the Sep meeting, Draghi promised to provide “detailed modalities” of the plans to purchase both asset-backed securities and “a broad portfolio of euro-denominated covered bonds”."

"Markets will focus on the expected size of these programs. In Sep, Draghi said the ECB aimed to return its balance sheet to the size it was “at the beginning of 2012.” Strictly speaking, that was EUR2.7 trillion but most talk has been about a EUR 3trn total, which was where the balance sheet reached in Mar 2012 after the second LTRO."

"The balance sheet is currently barely above EUR2.0trn. After the soft EUR83bn takeup of the 24 Sep TLTRO, the ECB has a long way to go. Should the ABS and covered bond plans be only modest in size – reflecting the small pool of assets available – then expectations for QE will only grow, to the euro’s detriment."

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