ECB: Change in guidance looming - Westpac

Draghi’s decidedly positive speech at the ECB’s 4th annual conference increased anticipation for a guidance shift at the ECB’s 7th Sept meeting (no econ update at 20th July), according to Tim Riddell, Research Analyst at Westpac.

Key Quotes

“In July last year, Draghi changed rhetoric over negative risks and in so doing put a floor in Bund yields. Draghi has now clearly highlighted upside potential but also the decidedly gradual nature of policy withdrawal as well as the global conundrum of low wage pressures and so low inflation.”

“Inflation may well soften in coming months, but with survey data printing at multi-year highs the near term bias has now lifted. EUR now seem likely to push positioning concerns aside and threaten extremes of the past two years’ range.”

“The push above 1.13 now suggests a higher range for EUR/USD (1.10-1.16) with a bias to test range resistance near term. A break higher in yields spreads would be needed to lift EUR further.”