ECB may be more focused on steepening the yield curve that easing lending conditions.
If so, that argues for less QE and more 10 BPS rate cuts. That's a scenario that could lead to short-term euro selling as it's used to fund carry trades. And my target is 1.0930 if rate cut is 20 BPS and QE Less than 50 billion EUR per month than final target is 1.0800
This weakness would be short-lived in our view, and would be an attractive entry point for EUR longs. The more EUR is used as a funding currency, the more it is likely to rally should a risk shock lead to carry trade unwinds. We think any risk rally in the coming weeks is tactical and unlikely to last long, so this unwind seems likely to us. Than my target would be 1.1200. if no rate cuts and more QE final target is 1.1280.
Perhaps more importantly, there is a risk that Laggard draws a harder line with policymakers and says that it's time that they step up and deliver stimulus -- something that could lift the Eurozone economy and the euro. So our main focus will be on rate cut and amount of QE.
If so, that argues for less QE and more 10 BPS rate cuts. That's a scenario that could lead to short-term euro selling as it's used to fund carry trades. And my target is 1.0930 if rate cut is 20 BPS and QE Less than 50 billion EUR per month than final target is 1.0800
This weakness would be short-lived in our view, and would be an attractive entry point for EUR longs. The more EUR is used as a funding currency, the more it is likely to rally should a risk shock lead to carry trade unwinds. We think any risk rally in the coming weeks is tactical and unlikely to last long, so this unwind seems likely to us. Than my target would be 1.1200. if no rate cuts and more QE final target is 1.1280.
Perhaps more importantly, there is a risk that Laggard draws a harder line with policymakers and says that it's time that they step up and deliver stimulus -- something that could lift the Eurozone economy and the euro. So our main focus will be on rate cut and amount of QE.