ECB: will market expectations be too high? - Nomura

Analysts at Nomura explained that it’s rare to have a “game changer” but that is what the December 2015 ECB meeting was. 

Key Quotes:

"It represented the beginning of the end for the few remaining easing measures from the ECB, but also caught the market completely off-guard. Not because it cut rates, but because it didn’t cut enough. EUR appreciated over 3% on the day, the most it has ever moved over an ECB meeting and the second largest move in its history."

"We don’t expect the June ECB meeting to have such an impressive effect, but can’t help but notice a pattern of over-estimation. In recent weeks we’ve been asked on a near-daily basis what language change we expect from the ECB and what normalisation path to expect. Quite rightly the market is very focused on the pace of the ECB’s policy normalisation but we think too much hope may be being placed on this one meeting."

"We and most economists simply expect the forward guidance to have the words “or lower” removed and not much else. The upshot is that positioning signals are mixed, but on balance they suggest the euro can still make meaningful gains with recent dovish ECB comments taking out a few of the overextended long EUR positions."

"We remain optimistic over the medium run and expect EUR/USD to approach 1.15 in coming months; but would advise caution trading EUR over the event itself and would be looking to buy on the dip."