ECB to reduce QE but the level will be key


All eyes on the ECB. There is little doubt that Draghi will announce another QE program and that monthly purchase levels will be cut back from current EUR 60 bln a month. The main question is how much will be cut, and how long the new program will run? We initially expected a trimming to EUR 40 bln for 6 months, but it seems “less for longer” is gaining traction. A cut to EUR 20-30 bln a month and a duration of 9 months would open the way to a full phasing out of next asset purchases at the end of September next year. It seems likely though that Draghi won’t fully commit to a final end date yet, and deliver the net purchase reduction within a wider dovish framework of forward guidance that highlights again that rates won’t rise until well after the end of asset purchases, which would push the first rate hike out to 2019. Data releases won’t change the ECB outlook at this stage and we expect confidence readings including PMIs and Ifo to confirm that the recovery continues to broaden across countries and sectors.

EURUSD  has slumped from its post Jackson Hole (August 25) induced rally high of  over 1.2100 to October lows under 1.1700.  Today its is again below the key 20 day moving average on the Daily chart finding some support in the 1.1740 -1.1700 zone.  Resistance to a move higher is the now strongly established trend line  and 38.2 Fibonacci retracement  level at at 1.1830-40 zone.


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