5 Mar 2014
Flash: ECB to hold? - Scotiabank
FXStreet (Guatemala) - Camilla Sutton, CFA, CMT, Chief FX Strategist at Scotiabank said EUR is likely to be supported by an ECB who maintains a similar tone to February..."we expect the ECB to remain on hold and make no major change to its tone".
Key Quotes
"EUR is weak, down 0.2% but trading within its recent range, but failing to benefit from several stronger than expected data releases. Eurozone services PMI rose to 52.6, the highest level since the summer of 2011; while retail sales jumped up +1.6%m/m and +1.3%y/y; and GDP was con firmed at 0.3%q/q with strength in capital formation. Tomorrow’s ECB meeting is the key near-term risk for EUR."
"ECB meeting outlook: EUR is likely to be supported by an ECB who maintains a similar tone to February. Below are the core reasons we expect the ECB to remain on hold and make no major change to its tone:"
"1. Headline inflation has stabilized just below 1.0% and appears to be above expectations, providing some credibility to the ‘wait-and-see’ mode the ECB has entered."
"2. Core inflation accelerated back to 1.0%y/y, which is encouraging."
"3. The ECB will update its forecasts; however for inflation the central bank is already close to market and the EC’s official forecasts, suggesting that the bar for a significant downgrade to their inflation forecast next week is likely relatively high—see middle chart."
"4. President Draghi highlighted that the Q4 GDP print would be important in the ECB’s analysis. This came in above expectations at 0.3%q/q and 0.5%y/y and trending higher, which should prove reassuring to the ECB."
"5. Emerging market pressures are constant, and in Europe are arguably worse than at the beginning of February, however so far the major central banks are only watching closely and not setting policy in accordance with it. The stabilization in disinflationary pressures is likely to ease some of the ECB’s concerns and drive a similar tone from President Draghi as was delivered in February."
"EUR/USD short‐ term technicals: bullish —but upward momentum has faded as EUR trades comfortably within its recent range. Friday’s trading range still holds, providing support and resistance at 1.3694 and 1.3825."
Key Quotes
"EUR is weak, down 0.2% but trading within its recent range, but failing to benefit from several stronger than expected data releases. Eurozone services PMI rose to 52.6, the highest level since the summer of 2011; while retail sales jumped up +1.6%m/m and +1.3%y/y; and GDP was con firmed at 0.3%q/q with strength in capital formation. Tomorrow’s ECB meeting is the key near-term risk for EUR."
"ECB meeting outlook: EUR is likely to be supported by an ECB who maintains a similar tone to February. Below are the core reasons we expect the ECB to remain on hold and make no major change to its tone:"
"1. Headline inflation has stabilized just below 1.0% and appears to be above expectations, providing some credibility to the ‘wait-and-see’ mode the ECB has entered."
"2. Core inflation accelerated back to 1.0%y/y, which is encouraging."
"3. The ECB will update its forecasts; however for inflation the central bank is already close to market and the EC’s official forecasts, suggesting that the bar for a significant downgrade to their inflation forecast next week is likely relatively high—see middle chart."
"4. President Draghi highlighted that the Q4 GDP print would be important in the ECB’s analysis. This came in above expectations at 0.3%q/q and 0.5%y/y and trending higher, which should prove reassuring to the ECB."
"5. Emerging market pressures are constant, and in Europe are arguably worse than at the beginning of February, however so far the major central banks are only watching closely and not setting policy in accordance with it. The stabilization in disinflationary pressures is likely to ease some of the ECB’s concerns and drive a similar tone from President Draghi as was delivered in February."
"EUR/USD short‐ term technicals: bullish —but upward momentum has faded as EUR trades comfortably within its recent range. Friday’s trading range still holds, providing support and resistance at 1.3694 and 1.3825."