According to Tim Riddell, senior market strategist at Westpac, markets had been primed by Draghi to anticipate both rate cuts and a restart of the ECB’s asset purchase program.
“The clear indication now is that ECB are likely to loosen their largely self-imposed limits on purchases with the potential of an “operation switch” to extend duration and credit in order to have greater impact.”
“The danger for ECB now is that markets have built up their expectations. This could result in a perceived failure to deliver causing market distress that could undermine confidence and EUR.”
“Uncertainty from politics in Italy and Spain should be seen as distractions at present. If Germany can push fiscal stimulus, together with effective ECB policy, there could be a notable lift for regional confidence and EUR. However, EUR rebounds are likely to be limited in the near term. Obstacles for German policy and risks of ECB disappointment may test EUR’s 1.10 support.”
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