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Euro May Rise Even if the ECB Extends and Expands QE Effort

Euro May Rise Even if the ECB Extends and Expands QE Effort

2016-12-08 08:16:00
Ilya Spivak, Head Strategist, APAC
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Talking Points:

  • ECB expected to extend QE program, broaden eligible assets
  • Euro may rise if ECB inflation outlook puts target within sight
  • NZ Dollar up as RBNZ’s Wheeler signals end of rate cut cycle

All eyes are on the ECB monetary policy announcement in European trading hours. Inflation has firmed since the central bank introduced its QE effort in early 2015 – hitting the highest level in nearly three years at 0.6 percent last month – but remains well below policymakers’ target of near 2 percent. That has stoked expectations that it will be extended beyond its expiry in March.

The ECB has soaked up so much paper already that extending the QE effort will probably mean broadening the scope of assets eligible for purchase. Policymakers may also scrap the restriction on buying bonds with yields below -0.4 percent or do away with the so-called “capital key” that guides the share of purchases allocated to a given Eurozone country’s debt (as argued in our weekly Euro forecast).

On balance, this much may already be priced in. Another key variable at play is the updated set of inflation forecasts. The ECB aims to keep QE until it is confident that price growth is heading in the right direction, meaning it could start unwinding it well before hitting its target. This means that the Euro may rise if officials fall short on any measures already expected or meaningfully upgrade their inflation outlook.

The New Zealand Dollar outperformed in overnight trade after RBNZ Governor Graeme Wheeler appeared to bury rate cut speculation, saying current policy should see inflation reach the 2 percent target. He added that the low point for inflation has probably passed and predicted strong growth prospects for the island nation’s economy over the next 18 months.

Join our coverage of the ECB rate decision and follow the market reaction live!

Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

23:50

JPY

BoP Current Account Balance (¥) (OCT)

1719.9b

1545.0b

1821.0b

23:50

JPY

BoP Current Account Adjusted (¥) (OCT)

1928.9b

1716.5b

1477.3b

23:50

JPY

Trade Balance BoP Basis (¥) (OCT)

587.6b

603.0b

642.4b

23:50

JPY

GDP SA (QoQ) (3Q F)

0.3%

0.5%

0.5%

23:50

JPY

GDP Annualized SA (QoQ) (3Q F)

1.3%

2.3%

2.2%

23:50

JPY

GDP Nominal SA (QoQ) (3Q F)

0.1%

0.2%

0.2%

23:50

JPY

GDP Deflator (YoY) (3Q F)

-0.2%

-0.1%

-0.1%

23:50

JPY

GDP Private Consumption (QoQ) (3Q F)

0.3%

0.1%

0.1%

23:50

JPY

GDP Business Spending (QoQ) (3Q F)

-0.4%

0.2%

0.0%

23:50

JPY

Bank Lending Incl Trusts (YoY) (NOV)

2.4%

-

2.4%

23:50

JPY

Bank Lending Ex-Trusts (YoY) (NOV)

2.4%

2.5%

2.4%

0:01

GBP

RICS House Price Balance (NOV)

30%

26%

23%

0:30

AUD

Trade Balance (A$) (OCT)

-1541m

-610m

-1272m

2:00

JPY

Tokyo Avg Office Vacancies (NOV)

3.75

-

3.64

3:41

CNY

Trade Balance (CNY) (NOV)

298.11b

320.00b

325.25b

3:41

CNY

Exports (CNY) (YoY) (NOV)

5.9%

-1.0%

-3.2%

3:41

CNY

Imports (CNY) (YoY) (NOV)

13.0%

3.6%

3.2%

3:55

CNY

Trade Balance ($) (NOV)

44.61b

46.90b

49.06b

3:55

CNY

Exports ($) (YoY) (NOV)

0.1%

-5.0%

-7.3%

3:55

CNY

Imports ($) (YoY) (NOV)

6.7%

-1.9%

-1.4%

4:30

JPY

Bankruptcies (YoY) (NOV)

-2.53%

-

-7.95%

5:00

JPY

Eco Watchers Survey: Current (NOV)

48.6

-

46.2

5:00

JPY

Eco Watchers Survey: Outlook (NOV)

49.1

-

49.0

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:30

EUR

France Non-Farm Payrolls QoQ (3Q F)

0.3%

0.3%

Low

7:30

EUR

Bank of France Bus. Sentiment (NOV)

100

99

Low

12:45

EUR

ECB Main Refinancing Rate

0.0%

0.0%

High

12:45

EUR

ECB Deposit Facility Rate

-0.4%

-0.4%

High

12:45

EUR

ECB Marginal Lending Facility

0.3%

0.3%

High

12:45

EUR

ECB Asset Purchase Target

€80b

€80b

High

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.0628

1.0686

1.0719

1.0744

1.0777

1.0802

1.0860

GBP/USD

1.2400

1.2513

1.2570

1.2626

1.2683

1.2739

1.2852

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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