ECB Preview: Fast forward to June – TDS

Analysts at TDS suggest that while markets are eagerly watching ECB meeting for a change in forward guidance language as a small, first step toward exiting from QE, they think it's more likely that all the key language remains unchanged.

Key Quotes

“We don't believe that there has been enough progress in underlying inflation to support a change in guidance quite yet.”

“We think that the June meeting is the more likely time to see a shift in forward guidance, since at that time the ECB should also announce what it plans to do with the QE programme after September - extend, taper, or stop - so should be able to give more suitable guidance to markets to fit with its plans.”

“FX Strategy: The EUR has had a bumpy road recently and the week ahead is complicated by a heavy event risk calendar. While its medium-term prospects remain bright, we remain on a tactically bearish footing toward the EUR into the ECB against the USD and other majors including the JPY and GBP.”

“Rates Strategy: We enter the meeting with the view that the ECB will maintain its patient stance on its evolution of monetary policy. Thus from a trading perspective, we continue to favour our receivers in ECB June 19 meeting as well as Eonia curve flattners. Furthermore, with ECB expected to anchor its short term rates, we hold a steepening bias for the 5s30s Bund curve.”