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- Morgan Stanley: Justification For A Mild EUR Weakness Over ECB The Meeting
Morgan Stanley: Justification For A Mild EUR Weakness Over ECB The Meeting
We believe the reaction of the EUR over the ECB meeting will ultimately depend on the probability of tapering in the next 12m. In particular, EURUSD will depend on the short end rate differential between EMU and the US. Our more medium term view, beyond this ECB meeting, is that we expect EURUSD to fall based on the rate differential staying wide and broad USD strength. Our economist's assumption is that the ECB will keep rates on hold at this week's meeting but add a 6m extension to its QE purchase programme. Since the ECB will come back with results from its committees on which QE constraints to relax, investors may have to deal with a plethora of information over the press conference, including new macro economic forecasts. Here are some points we will be looking for as FX watchers and the potential impact it would have on the EUR when taking each measure in isolation. We see justification for the EUR to weaken mildly over the ECB meeting.
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