ECB Meeting: Risk of EUR short squeeze lower than in December – MUFG

By FXStreet Lee Hardman, Currency Analyst at MUFG, notes that the euro has weakened modestly in the Asian trading session ahead of today’s ECB policy meeting at which further monetary easing is expected to be announced.

Key Quotes

“The lack of euro weakness in anticipation of today’s policy meeting in part reflects caution amongst investors that the ECB could disappoint expectations again with the memory from the December meeting still fresh in minds. The ECB’s disappointing policy response in December prompted a significant short squeeze higher for the euro partially reversing weakness in anticipation of the meeting. It prompted the ECB to signal that investors had got carried away in expecting even more aggressive easing than was ultimately delivered. As a result, the market has remained more cautious about building up easing expectations ahead of today’s policy meeting although more aggressive easing is still expected providing a high hurdle for the ECB to deliver a dovish surprise.

We are expecting similar to consensus expectations for the ECB to deliver a further 0.10 percentage point reduction in the deposit rate, a further six month extension of the duration of the QE programme to the end of September of next year, and unlike in December …read more

Source:: FX Street