Investors are poised for good news from the European Central Bank, but these strategists are taking a dimmer view.
The markets seem to have a glass-half-full view of what European Central Bank President Mario Draghi will pull out of his hat at Thursday's meeting. The strategists at Bank of America Merrill Lynch beg to differ.
"Markets may be a bit optimistic about what the European Central Bank will be able to achieve and its ability to move ahead of crises," they wrote in a note to clients. While many investors are expecting the ECB to start buying the bonds of troubled euro zone countries and otherwise resolving the euro zone crisis, these strategists are maintaining their third-quarter euro target of 1.1800 and year-end forecast of 1.1500.
"We look for the euro to weaken further this fall if Spain and Italy delay in asking for EFSF help and are eventually forced by markets to do so," they say. "Euro zone authorities could keep markets hoping for a grant solution, which would likely continue to support the euro, although not too well above current levels, in our view. On the downside, if Spain needs a full sovereign program, or the first program review in Greece fails and Euro exit becomes a threat, the euro could weaken below our projections."
To be continued.
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