What to Expect From the European Central Bank

European Central Bank
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European Central Bank

With the European Union summit behind us, investors are focusing on what the European Central Bank will do next.

Now that the European Union has taken decisive steps to deal with the euro zone crisis, investors are looking ahead to what might happen at the July meeting of the European Central Bank. Consensus seems to be building that the ECB will cut interest rates, and Andrew Busch, global currency and public policy strategist at BMO Capital Markets, has a plan.

"What I'd like to see is for the ECB to reward political leaders," perhaps with stimulus beyond a rate cut, he says. "That would really ease conditions and jack risk."

And what would that do for the euro?

"I think the way you have to look at it is whether the world is going to fall apart or the world doesn't fall apart." If the world doesn't fall apart, Busch told CNBC's Melissa Lee - in other words, if the euro zone doesn't implode - "you buy euros, you buy Aussie, you buy kiwis, you buy equities."

Busch notes that the euro has been trading in a range from about 1.24 to 1.28, and he thinks the market is still short the common currency. So he wants to buy the euro against the dollar right around 1.2525, set a stop at 1.2425, and look for a move up to 1.2825.

Rich Ross of Auerbach Grayson likes the trade on a technical basis. "We love the euro," he says. "We think that today's bold action is just the beginning of an incendiary summer surge," and he would buy the euro at current levels.

But Amelia Bourdeau, director of foreign exchange for Westpac Institutional Bank, cautions that with the market anticipating an interest rate cut, there is the potential for disappointment if the ECB does not do something more.

You can watch the discussion on the video clip.



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