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ECB corporate bond purchase speculation shouldn't lower EUR/USD much further - BTMU

FXStreet (Łódź) - Derek Halpenny, European Head of Currency Strategy at the Bank of Tokyo Mitsubishi UFJ comments on yesterday's EUR/USD drop following the news that the ECB is considering corporate bond purchases.

Key Quotes

"The drop in the EUR/USD rate on the speculation of QE by the ECB being expanded to the corporate bond market was relatively modest and we certainly do not see this as a driver for lowering EUR/USD much further, but the upside potential for the euro remains very limited."

"The corporate bond story looks like nothing to us. Have the ECB considered this route? We would say yes of course they have."

"If they believe sovereign debt QE is politically difficult, purchases of corporate bonds is perhaps the only other avenue for expanding QE. But we are probably a long way even from that."

"We will find out on Monday how aggressive the start of covered bond buying was this week and then in December we have the second LTRO and the start of ABS buying. There are a lot of measures yet to be taken, corporate bond buying can wait."

"The other point to make on this topic is that there is understandable hope that the AQR & stress test process will result in a notable pick-up in lending activity to the corporate sector in 2015. The results will be released on Sunday at 12 noon CET and if transparent and credible, the outcome should mean that riskier, underperforming assets that are currently clogging banks’ balance sheets will be more accurately priced and provisioned for that should then result in a more credible and liquid market for selling these assets without banks taking big hits to earnings."

"How these stress test results are taken by the market will be monitored by the ECB before any decision on corporate bond buying is taken. So we doubt we will see much further euro selling on this corporate bond buying speculation for now."

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