ECB: Some minor tweaks to the forecasts and language expected - BBH

Expectations that the European Central Bank would change its forward guidance in a substantive way had been one of the factors behind the euro's appreciation, but more recently, the anticipation has slackened, explains the research team at BBH.

Key Quotes

“The last meeting took place around the same time that many perceived US Treasury Secretary Mnuchin as having abandoned the strong dollar policy.  Today's meeting takes place amid US trade provocations.  Also, recent economic data, including the surveys that Draghi often cites, and today's unexpectedly large fall in German January factory orders (-3.9% vs. expectations for half the decline and the December series was revised to 3.0% from 3.8%), warns that the regional economy has lost some momentum.”

“There may be some minor tweaks to the forecasts and language.  The removal of the commitment to increase asset purchases if the economy were to suddenly to worsen may be the most that can reasonably be expected, though it does not really change anything.  While the forecasts themselves may only change a little, we suspect the confidence in them has softened.”

“We do not expect Draghi to be pulled into a discussion about Italian politics.  He can say that monetary policy is driven by the mandate of price stability and that the election is not impacting it.  Given the length of time it has taken other governments to put together a government, including Germany, it is premature to reach any policy conclusions about Italy.”

“The euro reached nearly $1.2445 yesterday, which is the highest level since it peaked on February 16 near $1.2555.  Today it has slipped a little below $1.2380 in the European morning.   Given the run-up since reversing higher on March 1, the pullback is minor.  There is a nearly 700 mln euro option struck at $1.2350 that expires today and the $1.2335 area corresponds to a 38.2% retracement of the recent rally.”