ECB Minutes Reveal Division On Setting QE End Date

 | Nov 24, 2017 11:52

Yesterday, the ECB released the minutes from its October policy gathering , where the Bank announced a reduction in the pace of its future QE purchases but did not set a clear roadmap for ending QE completely.

The minutes showed that a “few” members preferred to set a clear end-date instead of leaving QE open-ended. These members were most likely Weidmann, Galhau, and Coeure, as all of them indicated their support for such action after the meeting. Moreover, some policymakers argued the Bank should stop signaling that asset purchases will continue until there is a sustained improvement in the path for inflation, instead opting for some flexibility on the subject. Although there did not appear to be much support for such an action, the fact that this discussion took place maybe a hint of how the Bank could adjust its forward guidance in the future.

Meanwhile, the eurozone’s preliminary PMI for November all rose by much more than expected, signalling that the bloc’s economy picked up, even more, speed towards the end of the year. Should the eurozone continue to perform at a robust pace, this could add credibility to the argument of Weidmann and others to set an end-date to QE and thereby, generate speculation for a complete tapering of ECB purchases, perhaps as early as year-end 2018. As for the euro, even though the currency’s longer-term direction may be decided by the evolution of ECB policy, in the more immediate term, I believe that politics could overshadow economics once again. Specifically, the euro’s short-term bias may be dictated primarily by developments on the German political front. A confirmation that the country will head to early elections could heighten political uncertainty even further and thereby, weigh on the common currency.

EUR/JPY rebounded on Thursday from near the 131.40 (S2) support territory and during the Asian day Friday, it broke above the resistance (now turned into support) barrier of 131.90 (S1). The price structure on the 4-hour chart suggests that the short-term outlook is sideways, with the rate oscillating between the support level of 131.40 (S2) and the resistance territory of 134.40 since the 15th of September. That said, considering that the latest rebound started from the lower bound of this range, I see the prospect for further upside extensions, perhaps towards the upper bound. As such, I would expect the bulls to remain in charge and aim for a test of the 132.40 (R1) hurdle soon, where a clear break could pave the way for the 132.70 (R2) zone.

h3 EUR/JPY