EUR: ECB in a difficult position; looking to buy any EUR dip if the ECB is to act - BofA

eFXdata reports that Bank of America Global Research discusses its expectations for ECB policy meeting.

"The ECB is in a very difficult position this week, in our view. The market reaction to the Fed shows that monetary policy is not the answer to COVID-19. The market has already priced an ECB cut and the EUR is strengthening, but we argue that more negative rates will be counterproductive, and in any case, the ECB policy ammunition is very limited. Lagarde has to follow up on her warning that the ECB is not on autopilot, but her options are very limited, in our view. It is hard for the ECB to surprise markets positively, and we see risks for a disappointment," BofA notes.

"An ECB rate cut is unlikely in our view, but cannot be ruled out, particularly given recent EUR strength. Monetary and fiscal policy tools cannot avoid the supply shock in 1H, but could help minimize persistent demand effects. That, to us, means changes to QE and/or LTROs from the ECB, including a handover of the responsibility for a policy response to fiscal. We run scenarios to estimate the scope for a temporary increase in QE purchases, depending on the ECB's reliance on private assets/temporary divergence from cap keys. Even if the ECB is to act, we would treat any EUR dip as an opportunity to buy," BofA adds.