ECB likely to extend its QE program beyond September 2016

The ECB remains under pressure to deliver more easing. The ECB is expected to extend its QE programme beyond September 2016, says Nordea Bank in a research report to its client. 

The ECB's dovish bias and forward guidance will hold the EUR back even as growth and inflation continue to pick up. Widening nominal and real rate spreads versus the US will attract EUR-negative portfolio flows, which should help undermine the EUR. While the EUR has recently become positively correlated with stock markets (the old normal). 

"Our relative ECB and Fed views imply that this theme will become popular again, and hence the correlation will revert to a negative one, for example, why hasn't the EUR weakened due to risk-on? In a world where the Fed is heading towards an "undiscountable" exit from QE and ZIRP, it makes sense for the EUR to be weaker than usual versus the USD (the average of EUR/USD since 1973 is 1.17)", states Nordea Bank.