Analysts at TD SecutitThe ECB announced the end of QE.
"The compromise between the hawks and the doves with a 3m taper and a 9m pause leaves the first rate hike in September 2019 at the earliest. So while the path is not what we expected, the later start for rates hikes is what we thought was appropriate given the slow progress on inflation.
Draghi emphasize the ECB's optionality within the forward guidance, and would note the asymmetric nature, that it leaves risks around the first rate hike tilted toward a later hike than an earlier one. Especially since we believe that the ECB's macro forecasts are still a bit too strong, and vulnerable to further downgrades over the coming quarters, the ECB can use forecast downgrades in the coming quarter to push back on market pricing if the data materializes as we expect.
Rates: The shallow path of policy normalization by the ECB supports our base case for steeper EGB curves. We continue to favour our 5s30s Bunds Steepener as well as our EUR OIS 3y1y receivers in near term.
FX: The case for a sharp appreciation in EURUSD this year has diminished greatly with the ECB putting off its next major decision until well into 2019. A still-large overhang of stale EUR longs could add to selling pressure near-term, but we think EURUSD should find a floor. We think this could become more of a range trade for the foreseeable future as the USD's upside from this week's Fed decision looks relatively short-lived."
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