ECB: QE decision a trick or a treat? - TDS

The ECB’s press release was left almost entirely unchanged from June as the forward guidance on QE is still in place despite about half of analysts polled by Bloomberg looking for the ECB to drop its reference to increasing QE, either just in terms of size, or the full size and/or duration, notes the analysis team at TDS.

Key Quotes

“There was very little new information in the opening statement and Draghi’s press conference. Notably, Draghi did seem to try to take the focus away from the September meeting, just saying that the Governing Council would discuss changes to QE in the autumn, which sounds like the decision on QE beyond December could be punted back to the 26 October meeting.”

“There doesn’t seem to be any huge concern from the ECB about the repricing that we’ve seen in the region’s financial markets so far. Indeed, Draghi sidestepped a good opportunity to talk down the EUR. Draghi did say though that the last thing the ECB wants is an unwarranted tightening of financial conditions, so there is presumably a line in the sand somewhere at which point the ECB may start to push back against higher yields and a stronger EUR.”

“EURUSD has pushed to its highest level in nearly two years after the July ECB meeting, but we think the means do not justify the end. Draghi’s latest outing simply did not contain enough fresh catalysts to justify the move, suggesting a market seeking “confirmation bias” of further upside to come. With momentum now in the driver’s seat, we think EURUSD’s rally looks stretched as both the daily and weekly RSIs have edged into overbought territory. While we are patient in looking for a pullback we think one is now likely, although we would like to use this to enter strategic EURUSD longs from better levels.”