The effects of the ECB easing measures will begin to be felt more directly this week, says BNP Paribas.
“The negative deposit rate comes into effect on Wednesday, while excess liquidity will surge by €119bn as the last SMP sterilization facility matures on the same day though Tuesday’s MRO may see reduced uptake in anticipation of this. We note that even before these measures have fully taken effect, EONIA has already collapsed, fixing at 13-month lows of 6.7bp after averaging 26bp the previous 20 days,” BNP clarifies.
“The effects of the rate cut and extra liquidity are likely to keep EUR front-rates heavy, moving cash rate differentials against the EUR. We expect to see good interest to sell the EUR on rallies as a result, as investors hedge long EUR asset positions and use the EUR as a funding currency for risk trades,” BNP projects.
BNP added a short EUR/USD recommendation from 1.3620 after the ECB meeting and continue to run short EUR/GBP and short EUR/NOK recommendations as well.