“The single most important task for President Draghi and the Governing Council is to clarify their message at coming ECB meetings. Even if there is no near term QE augmentation or deposit cut (where we think a 10 bps surprise translates into 2 big figures downside for EUR/$), a lot can be achieved simply by stabilizing bund yields at a reasonable level (again, what matters is stability foremost), much as the Fed or BoJ did from the start of their QE programs.”
“And while base effects are really old news, we think the time to fix things is at one of the coming meetings, since headline inflation will jump once the December and January base effects come off. There is a need to fix ECB QE and the time to do that is now.”
“Should Draghi fall flat and sound too optimistic, the short EURUSD is likely over for the year and the pair will trade back towards 1.18-1.20 into year end.”
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