The European Central Bank assembly on Thursday is grabbing extra consideration amid rising speculations a couple of 50 foundation factors charge hike. According to analysts from TD Securities, the EUR/USD is displaying a buy-the-rumour, sample and so they warn this week could possibly be a pretext to reinstate quick positions from giant traders.
Key Quotes:
“EURUSD is displaying classic signs of a buy-the-rumor/sell-the-fact dynamic. As we warned last week, we were wary of ‘ECB sources’ stories emerging ahead of the decision to help manage expectations. Given EUR’s flirtation below parity, we thought a short-squeeze was likely.”
“Speculation has grown that the ECB may deliver 50bp hike instead of the ‘intended’ 25bp. Given how far behind the curve the ECB is, it is prudent to respect this ‘surprise’ scenario. It is the first line of defense to stave off a weak euro. But, it would pull forward the ECB’s limitations to hike aggressively later in its cycle as energy constraints intensify. We think a pushback on 100bp hike by Fed officials was partially to offer relief to the euro. But, as we have noted recently, the implosion of the current account will be hard to ignore.”
“There is concern that the anti-fragmentation tool will not be ready this week. We think it must be to begin lifting rates, or else it risks peripheral spread widening. The ECB suffers from institutionalized dovishness, so this week could be a pretext to reinstate shorts. 1.0340-1.0400 in EURUSD as key lines in the sand.”
