Given the data this week the market seems to be looking for the ECB to take a step closer to QE. European stocks certainly have no real reason to rise in this current environment, yet up they are going.
In most circles the threat and implementation of QE have seen the respective currencies weaken. That threat has been one of the reasons behind the fall in the euro from 1.40.
Is QE now priced in to the euro?
That’s difficult to know as despite the market getting ready for it we still don’t know the details of it. That’s what the ECB will be running around looking into as we speak. So far the rate cuts haven’t had any impact and as I’ve mentioned before, the ECB may not have the benefit of time before kicking off the TLTRO’s. The economy is in a mess and needs fixing fast.
As far as being priced in there may still be a drop in the euro if further details emerge but I’m leaning towards the fact that if it is announced it will give the euro a boost on the basis of positive action from the ECB. How far or how long that positivity will last is hard to judge and we could find that any rallies are turned around if they are not seen to have positive effect on the economy. Given the price action on the poor data at the moment we’re not seeing it go lower and that could be a sign that the pressure is building to hear an announcement.
Time is a massive part of whether QE comes into play. From January 2015 the ECB meetings switch to 6 week intervals. Checking the ECB calendar, the Dec 4th meeting will be the last until 22nd Jan. That might increase the chances of an announcement on QE coming before the year end. Something to bear in mind
