We suspect that further decline in the Eurozone inflation expectations in response to disappointing CPI data should fuel QE-expectations and weigh on EUR.
Which brings us to the topic of gauging the impact from any new QE on EUR? One way to gauge the impact is to look at the FX price action when the QErelated EUR-outflows were the heaviest. A look at the Eurozone BoP data would suggest that the outflows intensified significantly between July and December 2014. EUR/USD dropped by ca 15bf.
We suspect that the impact of any QE extension (expected in Q1 2016) should be more muted given that the bulk of the EUR-outflows seems to be behind us and the fact that global bond yields are now lower than they were in H2 2014 implying less scope for EUR-funded carry trades. The prospects for more ECB QE should keep the risks on the downside for EUR, however.
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