ECB: Will Draghi surprise again? – Nordea Markets

Jan von Gerich, analyst at Nordea Markets, expects that the ECB will extend its forward guidance, however markets are already pricing a clear probability of a further rate cut from the ECB hence it should not be a major market mover.

Key Quotes

“Extended forward guidance could still add some downside pressure on the euro and EUR rates.”

“We see risk/reward tilted towards a market reaction with a slightly stronger EUR and higher EUR rates, although Draghi has proved many times that he can be more dovish than the markets expects. This time it will be harder; markets expect a rate cut, very negative outlook for the euro area is already priced in and we expect the TLTRO-III terms to be less appealing than the TLTRO-II terms.”

“Further, Draghi is unlikely to open the door more to rate cuts compared to what he already did in April, while the conclusions on the ECB’s review on the possible side effects of negative rates will probably not be ready yet.”