EUR/USD: The ECB Should Take Notice Of EUR Overshooting
Tension is growing towards the ECB decision. What kind of tapering can we expect? Here is the view from Bank of America Merrill Lynch.
Here is their view, courtesy of eFXnews:
Bank of America FX Strategy Research argues that going into next week ECB October policy meeting, the central bank should take notice of the risk of EUR overshooting.
“We hope that Draghi and the rest of the ECB will take notice. The market believes, rightly so in our view, that the ECB is about to announce the end of QE by end-2018 not because of mission accomplished, but because of self-imposed technical constraints. This is a threat to the ECB‘s inflation credibility, in our view. If Draghi pushes back by arguing that the recovery has progressed enough, there is a risk the EUR could overshoot, pushing the ECB further away from its inflation target.
Our economists expect the ECB to announce €30bn for 9 months, which we think is broadly consistent with market expectations. The dovish surprise could come from leaving all options open for could happen after September next year, depending on inflation, and from strong forward guidance to keep rates on hold until inflation is well on its way towards the target, and very low well after. If Draghi does not persuade markets that there are no red lines in meeting the ECB’s inflation target, he may be forced to cross some of these red lines next year, his last year as the ECB’s President,” BofAML argues.
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