Macro Digest: It's time for the ECB to panic Macro Digest: It's time for the ECB to panic Macro Digest: It's time for the ECB to panic

Macro Digest: It's time for the ECB to panic

Macro 5 minutes to read
Steen Jakobsen

Chief Investment Officer

Summary:  Today's European Central Bank outing sees ECB president Mario Draghi staring down a wall of negative incoming data amidst the lowest EURUSD volatility in history while markets look for a policy response.


Heading into today's European Central Bank meeting, a few things seem abundantly clear. First, the ECB is not only behind on its growth forecast; it has essentially 'stopped out'. Note that while Europe's central bank is projecting 1.9% growth for 2019, the private sector is only calling for 1.3% and the Organisation for Economic Co-operation and Development forecasts a mere 1% of expansion.
OECD
Source: OECD
Second, the ECB's 'old' package of Targeted Longer-Term Refinancing Operations, or TLTROs, runs out in 2020. Fundamentally, the ECB does not believe in applying more stimulus from quantitative easing and TLTROs but it needs to build a bridge to a 'fiscal expansion/modern monetary theory' stance in end-2019. 

The market has priced in TLTRO operations; look at the Stoxx Bank Index (SX7E), which is up by more than 14% year-to-date. Consider as well that the Bundesbank does not favour further buying.

We are in a period of record low volatility in EURUSD, with today's meeting having the ability to shake things up significantly, depending on the ECB's statement.
EURUSD volatility
EURUSD volatility is cheap. As such, we are looking at options straddles or EUR puts into today's meeting.

The market is more likely to be disappointed by any potential 'delays' raised in today's announcement. In our view, such an outcome could see EURUSD break 1.12.
EURUSD
Source: Saxo Bank


Boulevard Plaza, Tower 1, 30th floor, office 3002
Downtown, P.O. Box 33641 Dubai, UAE

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.