22 Jan 2015
Credit Suisse - EUR Into ECB: How low can it go? – eFXnews
FXStreet (Barcelona) - The eFXnews Team shares Credit Suisse’s view of the three possible outcomes in today’s ECB QE.
Key Quotes
“1) The ECB broadly meets market expectations: This should translate into a probably stable but perhaps even modestly higher EUR near term, with lower implied volatility levels and a less-skewed risk reversal profile. This would not alter the longer-term downtrend in the EUR, but it might transform it into “slow but steady” from the more volatile profile seen so far in 2015.”
“2) The ECB beats market expectations: EURUSD would probably fall quickly in line with how implied volatility and risk reversal skews are priced.”
“3) The fails to meet expectations: A knee-jerk EUR jump of 1%-2% would be likely, justifying the shift higher in implied volatility over the past week, after which the broader downtrend should again resume as long as the market gets enough bandwidth to be able to price in the likelihood of the ECB coming up with more measures down the line.”
“"For these reasons, we have been EUR bears for some months as we have anticipated a more conventional phase of EUR weakness based on eventual ECB balance sheet expansion and monetary policy divergence, especially relative to the Fed," CS concludes”
This content has been provided under specific arrangement with eFXnews.
Key Quotes
“1) The ECB broadly meets market expectations: This should translate into a probably stable but perhaps even modestly higher EUR near term, with lower implied volatility levels and a less-skewed risk reversal profile. This would not alter the longer-term downtrend in the EUR, but it might transform it into “slow but steady” from the more volatile profile seen so far in 2015.”
“2) The ECB beats market expectations: EURUSD would probably fall quickly in line with how implied volatility and risk reversal skews are priced.”
“3) The fails to meet expectations: A knee-jerk EUR jump of 1%-2% would be likely, justifying the shift higher in implied volatility over the past week, after which the broader downtrend should again resume as long as the market gets enough bandwidth to be able to price in the likelihood of the ECB coming up with more measures down the line.”
“"For these reasons, we have been EUR bears for some months as we have anticipated a more conventional phase of EUR weakness based on eventual ECB balance sheet expansion and monetary policy divergence, especially relative to the Fed," CS concludes”
This content has been provided under specific arrangement with eFXnews.