Bank of America Global Research discusses its expectations for the ECB policy meeting on Thursday. BofA holds a short EUR/USD targeting a move towards 1.05.
"We expect the ECB to increase the Pandemic Emergency Purchase Programme (PEPP) envelope by EUR300-400bn this week, and the Asset Purchase Programme (APP) by around EUR120bn, including fallen angels in purchases and giving some clarity on PEPP reinvestment. Good news on the Recovery Fund does not let the ECB off the hook...
Given strong market expectations for PEPP increase, there may be some disappointment if the ECB stays on hold-EUR negative-but the market will still expect the PEPP to increase later in the summer. We would also expect Lagarde to repeat strong forward guidance of the ECB's determination to do whatever it takes, within its mandate, to address the severe economic shock," BofA notes.
"Despite the market euphoria following the EU Commission proposal on the Recovery Fund, we remain bearish EUR...The EU Recovery Fund is not yet approved and difficult negotiations ahead point to risks that it would weaken," BofA adds.