ECB Over-positioned?
The euro’s limited rebound on Monday suggests that markets are squarely behind expectations for a material ECB policy signal. A cut on Thursday in the refinancing rate is almost consensus, and even though we agree with this view, UBS Research points out that there are some caveats in anticipating a strong response to the weak inflation prints (for details please see European Economic Comment, Oct 31st and FX Comment, Nov 1st). We now find a third reason to be somewhat cautious on a tactical basis: positioning. In hindsight, markets were not positioned for an ECB response so early but has too much been priced in too soon?
Read the full report: UBS