Some comments from TD Securities ahead of tomorrow’s ECB meeting

  • We look for the ECB to keep its 12:45pm press release unchanged, despite the speculation that it could start changing the language as soon as this week’s meeting, something that we only give a 10% chance.
  • In the introductory statement, we look for the statement to be little changed from Dec, but with as much as a 1/3 chance that the ECB elevates its concerns about the EUR by bringing back “the recent volatility in the exchange rate” language from Sept.
  • The Q&A is where we’re more certain that Draghi will show more concern about tighter financial conditions (i.e. a higher EUR) and their potential drag on the inflation forecasts. We don’t look for much of a hint around what kind of changes to forward guidance could come later this year.
  • FX Strategy: With EUR long positioning looking increasingly stretched, we think EURUSD may be vulnerable to downside if Draghi focuses on a “weak USD” and pushes back sternly against recent strength. Signs of comfort with current levels, in contrast, would act as a green light for the uptrend to continue.

I think that’s pretty spot on. Tomorrow’s meeting is going to be all about trying to pry some details out about what might happen in March, the time touted for seeing a change of language. Draghi won’t want to be going out on a limb at this one but there is an ever increasing risk that the move higher in the euro brings stronger language. Recent ECB members have been at odds over the implications of a higher euro, with Ewald Nowtony saying a strengthening euro is unhelpful, while Ardo Hansson said the euro is not a threat to the inflation outlook. I’m expecting nothing more than a can kick tomorrow but the moves will come on how strong or weak Draghi is on the euro chatter.


Ryan Littlestone

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