Other factors argue against immediate action. First, there are some important risk events scheduled in the fourth quarter 2016, namely the Italian referendum and the US election. Although we expect none of these events to materially damage the macro and financial outlook, the ECB may find it wise to keep some powder dry. Second, there are still six months to go before the end of and a good dose of stimulus from previously announced measures is still in the pipeline. Third, the ECB is not willing to make it any harder for the Fed to normalize its . If the EUR were to resume a depreciating trend in response to immediate ECB easing, the FOMC might have second thoughts about the timing of its next rate hike, with obvious consequences for the USD and, maybe, also for investors’ mood. This is a risk the ECB does not want to take.
In our opinion the bar for a further step-up in the monthly pace of purchase seems to be fairly high, mainly due to the intensification of scarcity problems that this would cause and the thorny countermeasures the ECB may have to take. We remain convinced there will be no change to policy rates, as the side effects of an even more negative deposit rate would outweigh the benefits.
No action today is likely to support the EUR/USD . We stay long and raised the target to 1.1390 on our short-term position.
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