SHORT EURUSD: ECB MEMBER NOWOTNY + DOWNSIDE ECONOMIC REVISIONS
ECB nowotny reiterated senior member official sentiments regarding the situation with Italian banks unsurprisingly saying people "Should not over dramatise situation regarding Italian Banks". He also hawkish said that the Brexit impact forecasted on the EUROZONE economy would be less than the IMF forecasts. Perhaps the most important sentiment though was that regarding the ECB's APP which is due to end in March 2017 saying "Future path of QE decision to be made in Q4" and "Still open to whether to phase QE purchases out or not" - providing little inferences whether the ECB expects to extend or end their APP. However, one would think, unless the underlying inflation trend was to pick up, certainly there would be an extension/ phase out of QE. A source from social media reported on the matter with more conviction and to the hawkish side saying "Reports Said To See No Current Urgency For QE Action In September".
Nowotny playing his cards close to his chest regarding the future ECB QE path is unsurprising, however, the Social Media Report claims are a little more worrying given they somewhat write off fresh QE action for the ECB's september meeting - something which many banks/ consensus thought would be the case, given the persistently low Euro inflation and hints from ECB minutes/ Draghi that maturity extension would be likely at the September meeting. However, the authenticity/ reliability of the reports has to be considered given the source is social media.
On a more certain note the ECB Polled forecasters posted dovish/ EUR bearish economic outlook figures for EUR, downgrading GDP and inflation readings for 2017 and 18, with 2016 staying unchanged .
Trading strategy:
1. This personally doesnt change my material medium-term short EUR$ 1.1100 trade as the macro headwinds/ future headwinds described in previous posts still go unpriced. Though the short view is weakened slightly IF the above "no QE extension" is true since some of the future EUR$ downside was based on further ECB easing. Though all of which is just speculation, and without any conviction from officials, waiting for the September decision itself seems the smartest thing to do continuing short - especially as forecasted GDP/ Inflation figures have been reduced which is bearish for the EUR and as the USD leg of the trade continues to strengthen as rate hike expectations continue to increase in this risk-on market with Fed Funds Futures Opt Implied probs now trading at 19.5% for Sept, 20.8% Nove and 40% for Dec, up from yesterday at 18.8, 20 an 39.8 - the risk-on bias already started today will likely see these probabilities continue to strengthen until the end of the day.
ECB Member Nowotny Comments:
-ECB's Member Nowotny: "In principle decision from 2nd June not to employ new monetary tools remains true, new uncertainties have emerged."
-ECB's Member Nowotny: Still open on whether QE will be phased out gradually or not
-ECB's Member Nowotny: Future path Decision on QE to be made in Q4
-ECB's Member Nowotny: EZ 2017 Inflation Seen Over 1%, Sees No Acute Danger Of Deflation
-ECB's Nowotny: BREXIT Effect on Eurozone GDP expected to be less than IMF forecast
-ECB's Nowotny: Should not over dramatise situation regarding Italian Banks
ECB Polled Forecasters:
-ECB: Polled Forecasters See Eurozone 2016 HICP at 0.3%, Matching Previous Quarter
-ECB: Forecasters See 2017 HICP at 1.2%, vs 1.3% Seen in 2Q
-ECB: Forecasters See 2018 HICP at 1.5% vs 1.6% Seen in 2Q
-ECB: Forecasters See 2016 GDP Growth at 1.5%, Matching Previous Qtr
-ECB: Forecasters See 2017 GDP Growth at 1.4% vs 1.6% Seen in 2Q
-ECB: Forecasters See 2018 GDP Growth at 1.6% vs 1.7% Seen in 2Q
-ECB: 55% Of Respondents Included Estimate of UK Referendum Impact in Forecasts
*See attached posts for more EUR$ downside fundamentals*
Nowotny playing his cards close to his chest regarding the future ECB QE path is unsurprising, however, the Social Media Report claims are a little more worrying given they somewhat write off fresh QE action for the ECB's september meeting - something which many banks/ consensus thought would be the case, given the persistently low Euro inflation and hints from ECB minutes/ Draghi that maturity extension would be likely at the September meeting. However, the authenticity/ reliability of the reports has to be considered given the source is social media.
On a more certain note the ECB Polled forecasters posted dovish/ EUR bearish economic outlook figures for EUR, downgrading GDP and inflation readings for 2017 and 18, with 2016 staying unchanged .
Trading strategy:
1. This personally doesnt change my material medium-term short EUR$ 1.1100 trade as the macro headwinds/ future headwinds described in previous posts still go unpriced. Though the short view is weakened slightly IF the above "no QE extension" is true since some of the future EUR$ downside was based on further ECB easing. Though all of which is just speculation, and without any conviction from officials, waiting for the September decision itself seems the smartest thing to do continuing short - especially as forecasted GDP/ Inflation figures have been reduced which is bearish for the EUR and as the USD leg of the trade continues to strengthen as rate hike expectations continue to increase in this risk-on market with Fed Funds Futures Opt Implied probs now trading at 19.5% for Sept, 20.8% Nove and 40% for Dec, up from yesterday at 18.8, 20 an 39.8 - the risk-on bias already started today will likely see these probabilities continue to strengthen until the end of the day.
ECB Member Nowotny Comments:
-ECB's Member Nowotny: "In principle decision from 2nd June not to employ new monetary tools remains true, new uncertainties have emerged."
-ECB's Member Nowotny: Still open on whether QE will be phased out gradually or not
-ECB's Member Nowotny: Future path Decision on QE to be made in Q4
-ECB's Member Nowotny: EZ 2017 Inflation Seen Over 1%, Sees No Acute Danger Of Deflation
-ECB's Nowotny: BREXIT Effect on Eurozone GDP expected to be less than IMF forecast
-ECB's Nowotny: Should not over dramatise situation regarding Italian Banks
ECB Polled Forecasters:
-ECB: Polled Forecasters See Eurozone 2016 HICP at 0.3%, Matching Previous Quarter
-ECB: Forecasters See 2017 HICP at 1.2%, vs 1.3% Seen in 2Q
-ECB: Forecasters See 2018 HICP at 1.5% vs 1.6% Seen in 2Q
-ECB: Forecasters See 2016 GDP Growth at 1.5%, Matching Previous Qtr
-ECB: Forecasters See 2017 GDP Growth at 1.4% vs 1.6% Seen in 2Q
-ECB: Forecasters See 2018 GDP Growth at 1.6% vs 1.7% Seen in 2Q
-ECB: 55% Of Respondents Included Estimate of UK Referendum Impact in Forecasts
*See attached posts for more EUR$ downside fundamentals*
