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3 Mar 2015
ECB meeting ahead to impact rates rather than FX – BAML
FXStreet (Barcelona) - Strategists at BofA-Merrill Lynch, view that the impact of ECB’s meeting will likely be felt on rates rather than the EUR, with Fed hike expectations being a more important driver for the single currency, further expecting an acceleration in front-end rates when the program begins.
Key Quotes
“On a macro level, we argue the front-end is still mispricing the net liquidity addition from both the QE and TLTRO operations. We expect an acceleration in the front-end repricing once the program begins, given our forecast of the ECB’s balance sheet expansion, with 2y1y still attractive.”
“The shortage of physical cash assets should also see Bunds richen further vs swaps, while cleaner positioning in the periphery sees us bullish spreads. We continue to target 80bp for the BTP/Bund spread.”
“We do not expect FX implications from the meeting. The ECB has already announced open-ended QE, which has helped weaken the euro further.”
“Any technical details will have more implications for rates than for FX.”
“Consistent with our call in last week's report, the DXY has strengthened this week. The euro has not reacted much to the deal in Greece, while it already looks cheap after taking into account recent improvements in data.”
“We believe flows and market expectations about the first Fed hike are more important drivers for the euro in the months ahead than the ECB.”
Key Quotes
“On a macro level, we argue the front-end is still mispricing the net liquidity addition from both the QE and TLTRO operations. We expect an acceleration in the front-end repricing once the program begins, given our forecast of the ECB’s balance sheet expansion, with 2y1y still attractive.”
“The shortage of physical cash assets should also see Bunds richen further vs swaps, while cleaner positioning in the periphery sees us bullish spreads. We continue to target 80bp for the BTP/Bund spread.”
“We do not expect FX implications from the meeting. The ECB has already announced open-ended QE, which has helped weaken the euro further.”
“Any technical details will have more implications for rates than for FX.”
“Consistent with our call in last week's report, the DXY has strengthened this week. The euro has not reacted much to the deal in Greece, while it already looks cheap after taking into account recent improvements in data.”
“We believe flows and market expectations about the first Fed hike are more important drivers for the euro in the months ahead than the ECB.”