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28 Nov 2014
ECB gets serious about QE – TDS
FXStreet (Barcelona) - Research Analysts at TD Securities, note that the falling inflation has led the ECB to come to the conclusion that it needs to take stern steps to bring back inflation to its target.
Key Quotes
“Last week, President Draghi noted in a speech that "last November, [inflation] still stood at 0.9%. This was low, but it was generally expected to rise safely above 1% by now. Instead, the latest reading for headline inflation is 0.4%." He went on to conclude that "we will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us."
“This week it was the turn of Vice President Constancio, who noted that the central bank would gauge the progress achieved with its most recent measures in increasing the size of its balance sheet, and, if necessary, they could buy sovereign bonds in the secondary market.”
“At the November 6th press conference, Draghi was quite explicit in setting an €3-trillion reference size for the ECB balance sheet. This means the central bank will have to expand its balance sheet by an additional €1trillion; the key now is that Draghi et al realize they have to do it sooner rather than later.”
“All in all, the ECB meeting next week would seem too soon to make any concrete announcements, but it is safe to assume that at least Mr. Draghi will further fuel QE expectations at his press conference.”
“This should keep EUR playing defense; and, if he appears to be resolute on the issue, this might be enough for EURUSD to break new cycle lows below 1.2360.”
Key Quotes
“Last week, President Draghi noted in a speech that "last November, [inflation] still stood at 0.9%. This was low, but it was generally expected to rise safely above 1% by now. Instead, the latest reading for headline inflation is 0.4%." He went on to conclude that "we will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us."
“This week it was the turn of Vice President Constancio, who noted that the central bank would gauge the progress achieved with its most recent measures in increasing the size of its balance sheet, and, if necessary, they could buy sovereign bonds in the secondary market.”
“At the November 6th press conference, Draghi was quite explicit in setting an €3-trillion reference size for the ECB balance sheet. This means the central bank will have to expand its balance sheet by an additional €1trillion; the key now is that Draghi et al realize they have to do it sooner rather than later.”
“All in all, the ECB meeting next week would seem too soon to make any concrete announcements, but it is safe to assume that at least Mr. Draghi will further fuel QE expectations at his press conference.”
“This should keep EUR playing defense; and, if he appears to be resolute on the issue, this might be enough for EURUSD to break new cycle lows below 1.2360.”