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EUR bears scramble after ECB whimper - SocGen

FXStreet (Delhi) – Research Team at Societe Generale, notes that the EUR promptly reversed a full month of losses against the USD and JPY after the ECB disappointed in the announcement of new policy measures to support economic growth and a return of inflation to the target of close to but below 2% over two years.

Key Quotes

"The deposit rate was cut by 10bp to -0.30% and the pace of asset purchases was maintained at €60bn per month, though the programme was extended to March 2017. The revisions to the staff forecasts were minimal. The revisions to growth cancelled on another out between 2015 and 2017, and the inflation outlook was trimmed by 0.2pp over the same period.”

“The less aggressive than expected policy response by the ECB inevitably takes the pressure off other central banks, like Denmark, Sweden and Switzerland, where both warranted and les warranted currency appreciation of the DKK, SEK and CHF against the EUR since October had caused fresh frustration and fuelled speculation of potentially more policy action in the coming days, including lower interest rates and/or currency intervention. The SNB was strongly favoured to cut interest rates again by 25bp next week, but this now looks less likely.”

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Research Team at Nomura, still thinks that a subdued inflation path in the euro area will force the ECB into further easing in 2016 (which could entail more QE in size and pace as well as another deposit rate cut) and they do not want to rush into changing their strategic positioning on the back of Thursday’s drastic price action.
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