ECB Preview: Hints of negative rate or lack of PEPP action could send EUR/USD down
|Yohay Elam, an analyst at FXStreet, sets out three scenarios for the European Central Bank's (ECB) quantitative easing measures and its implications for the EUR/USD pair, with a larger top-up better for the euro.
Key quotes
“Extra €250 billion: The most likely scenario is that the bank tops up the pandemic emergency purchase programme (PEPP) to a total of €1 trillion. That would send a message to markets that the ECB continues supporting the economy while not hurrying too much, as economies are already opening up. In this case, which has a high probability, EUR/USD would advance but probably remain within known ranges.”
“Going big, +€500 billion or more: To send a clear message to bond markets and also the constitutional court, Lagarde would push for raising the emergency fund by 66% to €1.25 trillion. This scenario has a medium probability. EUR/USD would rally on the unequivocal message from Frankfurt.”
“No action now: The ECB may express content from the current pace of lifting the lockdowns as COVID-19 statistics continue falling. That may trigger caution, waiting until the next meeting in July before acting. In this scenario, which seems unlikely, EUR/USD will probably tumble down.”
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