Fra BNP Paribas:
ECB will struggle to clear a rising bar We expect significant new easing measures from the ECB Thursday, including a 20bp cut in the deposit rate, a €10bn increase in the run rate of asset purchases, and a six month extension to the asset purchase program. It is difficult to measure expectations heading into the meeting.
However, many market participants appear to be of the view that the central bank will endeavour to “over-deliver”, effectively making it very difficult for the ECB to surprise meaningfully.
A result in line with our estimates could see the EUR weaken initially, but we do not expect a significant break lower and would look for retracement as markets digest the news.
With rate differentials unlikely to widen meaningfully further and the risk environment likely to remain challenging, we expect EURUSD to ratchet higher in the weeks ahead and continue to target 1.16 by mid-year. We do remain short EURSEK heading into the decision, while maintaining long EURCAD and (via options) long EURJPY exposure.
