ECB continues to wait for inflation upturn patiently, prudently, and persistently - TDS

With the ECB’s big QE decision out of the way, analysts at TDS are looking for more focus on the macro projections at this week’s meeting.

Key Quotes

“We think that Draghi will put the focus on further upgrades to the GDP forecasts, while the rise in crude oil prices will support the headline HICP forecast, despite two months of disappointing core prints.”

“Rates Strategy: The ECB’s October meeting has provided markets with a well anchored path for monetary policy in medium-term. With duration risk returning to market we continue to see upward pressure on credit spreads in 18Q1. We continue to favour Eonia steepeners and short 5y Bund ASW in near term.” 

“FX Strategy: On balance, we think this will be a fairly tame affair for the EUR. Unless significant concerns are flagged on core inflation, we see two-way risks for EURUSD that may be as much influenced by the prior-day’s FOMC as anything that emerges from the ECB. Ahead of this, we think EUR’s soft tone may continue ahead of the meeting, while any notable weakness offers an attractive entry point for strategic longs.”