22 Jan 2015
FX implications of different ECB QE outcomes – HSBC
FXStreet (Barcelona) - Daragh Maher, FX Strategist & David Bloom, Global Head of FX Research at HSBC, share the probable EUR outcome under four scenarios related to ECB QE expectations.
Key Quotes
“Following media reports yesterday, market expectations for today's ECB meeting are for a QE programme of EUR50bn per month extending over 1-2 years. We examine how the EUR may fare under four scenarios of what the ECB delivers relative to these expectations.”
“1 - Substantial disappointment: Fade the EUR rally on disappointment since the ECB would merely be delaying inevitable future easing. Similar in tone to initial BoE QE.”
“2 - Mild disappointment: EUR to rally and stabilise as market will not be confident that undershoot will be addressed with additional future easing.”
“3 - In line with consensus: Little initial reaction as this was likely already in the price. However, EUR to weaken in future as QE fosters weaker currency which, in turn, supports asset prices. The causality runs from currency to asset prices, not the other way round.”
“4 - Greater than expected: EUR lower on aggressive QE announcement, and then downtrend is extended as QE programme continues to weaken EUR. Speed of decline becomes data dependent. Similar in tone to BoJ 'shock and awe' QE.”
Key Quotes
“Following media reports yesterday, market expectations for today's ECB meeting are for a QE programme of EUR50bn per month extending over 1-2 years. We examine how the EUR may fare under four scenarios of what the ECB delivers relative to these expectations.”
“1 - Substantial disappointment: Fade the EUR rally on disappointment since the ECB would merely be delaying inevitable future easing. Similar in tone to initial BoE QE.”
“2 - Mild disappointment: EUR to rally and stabilise as market will not be confident that undershoot will be addressed with additional future easing.”
“3 - In line with consensus: Little initial reaction as this was likely already in the price. However, EUR to weaken in future as QE fosters weaker currency which, in turn, supports asset prices. The causality runs from currency to asset prices, not the other way round.”
“4 - Greater than expected: EUR lower on aggressive QE announcement, and then downtrend is extended as QE programme continues to weaken EUR. Speed of decline becomes data dependent. Similar in tone to BoJ 'shock and awe' QE.”