Latest client note from Union Bank of Switzerland courtesy of efxnews.com. Sign up for the free trial here
Says UBS:
Our Euro area economics research team expects the ECB to deliver a 10bps deposit rate cut to -30bps. In addition, we believe the dovish guidance President Draghi gave to markets implies that the ECB is likely to take the opportunity to extend the QE programme by 3-6 months, thus giving the markets early clarity about the longer-term policy outlook.
Putting it all together, we show that the best way to position for the upcoming ECB QE operation is to buy the Eurostoxx (with a preference in the financial sector as our Euro-area equity strategists also argue or to buy Euro-area credit (the iTraxx for instance).
...Finally, while the ECB's dovish shift is obviously negative for EUR/USD in the initial instance, we believe the cyclical softness in the US limits the downside potential....We think the EUR/USD range that has been established since May is likely to hold, and makes the currency an unappealing way to trade the ECB's dovish shift."
