December ECB meeting impact

23 November,, London – Although the remarks from ECB’s Lautenschlaeger on Monday stressed that not everyone on the Governing Council supports further easing, BNP Paribas believes that the ECB President Mario Draghi and the majority of members will remain focused on the subdued economic inflation outlook.

December ECB meeting impact

To counter it, the ECB is expected to deliver a cut in the deposit rate, prolong the asset purchase program, and increase the monthly rate of asset purchases at the 3rd of December meeting.

“We see further scope for a rebuilding of EUR shorts and weakness in the EUR going into the ECB meeting, with EURUSD likely re-testing 1.05,” BNP Paribas projects but warns that “ECB action in line with our expectations would more likely lead to a ‘buy the fact’ reaction, pushing EURUSD higher into year-end.”

December ECB meeting impact

Source: Bloomberg, BNP Pariabs

Sell EUR on rallies – Credit Agricole

Although less during the start of this week, the EUR has been under selling pressure for most of the past few weeks, mainly due to the pricing of the dovish ECB expectations.

Consider reading: Weekly G10 FX Quant Fund analysis

This is particularly true after the ECB Chief Economist Praet outlined that inflation outlook remains fragile and is at risk of becoming de-anchored. Considering such subdued rhetoric, the central bank is unlikely to take much comfort from better than anticipated incoming data.

December ECB meeting impact

“Given little scope of falling central bank easing expectations and as central banks such as the Fed should stay on track towards considering higher rates in December, we believe the EUR will remain a sell on rallies,” Credit Agricole states.

However, in the very short term, heightened speculative short positioning might have increased position squaring related to the seen upside risk.

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