7 May 2014
Euro not as strong enough to justify a rate cut - Scotiabank
FXStreet (Córdoba) - Camilla Sutton, analyst at Scotiabank commented that even though the EUR/USD is higher (at 1.39) than it was at the last ECB meeting (1.37), they do not foresee this as strong enough to justify a rate cut. Scotiabank do not expect an interest rate cut or the launch of QE at tomorrow’s meeting.
Key Quotes
“We expect the ECB to hold policy, leaving interest rates at 0.25%, but a dovish tone delivered by President Draghi. Of the 58 economists polled by Bloomberg, only two see an interest rate cut however the market is pricing in a slightly larger risk of policy action. Our analysis is below (as well as different details in yesterday’s morning document); we do not expect an interest rate cut or the launch of QE”.
“Interest rate cut would be appropriate on the back of a tightening of monetary dynamics, either from short‐rates, a higher EUR or developments in global bond markets. The EUR is higher (at the last meeting it was at 1.37 and has now rallied to 1.39); however we do not foresee this as strong enough to justify a rate cut.”
“An asset purchase (QE) program would be warranted if there was a worsening in the medium term outlook for inflation, we highlighted yesterday that it is arguable this has occurred; however with high frequency data suggesting building growth momentum and a bottom in CPI likely already formed the ECB has enough reason to take a wait‐and‐see approach”.
“EUR/USD short‐term technicals: bullish as most studies warn of building upside momentum. The year‐to‐date high of 1.3967 is the most obvious level followed by 1.4000, where EUR last traded at in October 2011. Support lies at yesterday’s open of 1.3875.”
Key Quotes
“We expect the ECB to hold policy, leaving interest rates at 0.25%, but a dovish tone delivered by President Draghi. Of the 58 economists polled by Bloomberg, only two see an interest rate cut however the market is pricing in a slightly larger risk of policy action. Our analysis is below (as well as different details in yesterday’s morning document); we do not expect an interest rate cut or the launch of QE”.
“Interest rate cut would be appropriate on the back of a tightening of monetary dynamics, either from short‐rates, a higher EUR or developments in global bond markets. The EUR is higher (at the last meeting it was at 1.37 and has now rallied to 1.39); however we do not foresee this as strong enough to justify a rate cut.”
“An asset purchase (QE) program would be warranted if there was a worsening in the medium term outlook for inflation, we highlighted yesterday that it is arguable this has occurred; however with high frequency data suggesting building growth momentum and a bottom in CPI likely already formed the ECB has enough reason to take a wait‐and‐see approach”.
“EUR/USD short‐term technicals: bullish as most studies warn of building upside momentum. The year‐to‐date high of 1.3967 is the most obvious level followed by 1.4000, where EUR last traded at in October 2011. Support lies at yesterday’s open of 1.3875.”