We feel the ECB has done enough to pacify the hawks as it dropped the easing bias tone. Underpinned by a more optimistic economic outlook, the ECB revised upwards slightly its 2018 GDP to 2.4% and 2019 to 1.9% while we are looking at 2.3% for 2018 and 2.4% for 2019.

While it is an endorsement by the ECB that normalization is on track, the central bank will need to monitor closely the movement of the currency. A strong euro can complicate the current positive mood. We are looking at the euro to hover around 1.26-1.28 with room to reach 1.30 against the USD in 2018. Against the Malaysian ringgit (MYR), we foresee a slight weakening trend against the euro, expecting the MYR to settle around 4.88.

Meanwhile, we believe the current quantitative easing (QE) of €30bil bond-buying programme should end by September 2018. However, the central bank might reduce further the QE to €15bil from October and end the QE by December 2018 if the increase in core inflation remains slow. Should that happen, the MYR would settle around 4.86 against the euro.

• The European Central Bank (ECB) dropped its easing bias, fuelling expectations that it will normalize its monetary policy in the euro area. This comes about with the ECB having removed its communication that it is ready to increase the level of bond purchases it makes in both duration and/or sizes should the economic outlook deteriorates.

• Underpinned by a more optimistic economic outlook, the ECB revised upwards slightly its 2018 GDP to 2.4% and 2019 at 1.9% but maintained the 2020 GDP at 1.7%. We are looking at a GDP growth of 2.3% for 2018 and 2.4% for 2019.

• While it is an endorsement by the ECB that normalization is on track, the central bank will need to monitor closely the movement of the currency. A strong euro can complicate the current positive mood. Europe’s exports can get hurt and affect prices in the region, forcing the central bank to change its monetary policy.

• We are looking at the euro to hover around 1.26-1.28 with room to reach 1.30 against the USD in 2018. Against the Malaysian ringgit (MYR), we foresee a slight weakening trend against the euro, expecting the MYR to settle around 4.88 on the back of improving euro’s macro data and potential monetary tightening by the ECB. But the downside on the MYR is limited due to healthy domestic fundamentals and room for BNM to hike its current 3.25% OPR by another 25bps.

• Meanwhile, we believe the current quantitative easing (QE) of €30bil bond-buying programme should end by September 2018. However, the central bank might reduce further the QE to €15bil from October and end the QE by December 2018 if the increase in core inflation remains slow. Should that happen, the MYR would settle around 4.86 against the euro.

Source: AmInvest Research - 9 Mar 2018