EUR: Series of small ECB positives may equate to a fairly punchy move higher - ING

The ECB meeting today will take place at a time when global markets are at a pivotal juncture, which could make for a fairly interesting (or entertaining) press conference with President Draghi, suggests Viraj Patel, Research Analyst at ING.

Key Quotes

“From the ECB chief’s perspective, it’ll all be about managing expectations and sending nuanced signals. For markets, we’ll be looking to infer what role the global external environment (ie, stock market volatility and US protectionism) is playing in the ECB’s policy reaction function.

• We expect the following combination of developments from the ECB meeting today to be broadly supportive for the EUR: (1) a subtle change in the ECB’s forward guidance to keep markets on their toes over the potential end to QE asset purchases this year; (2) no attempts by President Draghi to actively talk down the euro; and (3) an upward revision to the ECB’s growth profile (2018 GDP nudged up to 2.4%), while no change to the CPI profile (2018 at 1.4%).
• While we don’t expect any explicit QE end date to be announced today, the ECB dropping its willingness to “increase QE in size and/or duration” would be an implicit step forward towards the end of asset purchases – and might just be enough to appease the dissenting hawks within the Governing Council.
• On the currency front, expect “volatility” in the euro to be cited as a “source of uncertainty” – although this is merely a matter of fact within the context of central bank policymaking. Only direct concerns over the level of the FX – for which we think there are little grounds for justification (pointing to the flat-ish trade-weighted EUR since Feb) – would actually spook EUR investors.
• Looking ahead, markets remain relatively underprepared for the next stages of ECB policy normalisation. The short-term 3-year forward EZ OIS rate is still around 50bps below its level when the ECB began easing in summer 2014. A re-pricing here this summer will set EUR/USD on a path towards 1.30 in 2018.”