“Demand creates supply.” (ECB policy in a nutshell)
Tapering is on…just not in the US. ECB’s excess liquidity declining further, with banks to repay yet another EUR 7.2bn this week. Normalization (Figure 1). The month-end and year-end cyclical declines in liquidity the ECB has regular routines to deal with, including the elegant failure to sterilize the SMP amount fully last week. The worst that could happen to the EUR is a depo rate cut, because the only function it would serve is asignal of currency attack…(eventually doomed to fail, though). Outright QE? Another similar vLTRO? Not, if want to break the bank-sovereign nexus . Only a targeted FLS-type LTRO would be good news.
Read the full report: FX Research
Nordea