BofAML Global Research: Liquid Insight_ECB Preview

Redacción - Miercoles, 24 de Enero

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Liquid Insight: ECB preview: Not an easy meeting •  Tricky ECB this week: emphasis will be on sequencing and gradual change to forward guidance. Rate hikes in 2018 unlikely. •  In rates, we see risks skewed towards a more dovish Draghi this week, 2020 hike pricing appears aggressive & 2y1y Eonia cheap
•   In FX, the cyclical outperformance of the EUR may have run its course; currency vulnerable to comments from Draghi during Q&A

No peace and quiet for the ECB

During the last two weeks markets have reacted to every single comment from ECB speakers. Far from the "peace and quiet" the ECB probably thought it had bought itself last October, this clearly suggests the press conference this week will not be an easy one for Draghi. In our view, this reflects what we highlighted before: changing one part of forward guidance opens the door to the market questioning every single bit of it.

Still, we would expect Draghi to emphasize that any changes to forward guidance will only be gradual and that the sequencing (rate hikes only after net QE purchases are over) is something that will not be altered. Those expecting rate hikes at the end of this year may end up being disappointed.

Finally, we do not expect any major change to forward guidance this week apart from the removal of the asymmetry in QE, which we do not think would be consequential.

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