In the current round of so called currency wars, the ECB is the loser, which means that the euro is a winner.
Will the ECB act? The team at BNP Paribas weighss in:
Here is their view, courtesy of eFXnews:
BNP Paribas thinks that comments from ECB Vice President Constancio at 10:40 GMT could prove to be very important for markets. 5y5y inflation expectations, the ECB’s preferred measure, is down by some 25bp since early July, effectively unwinding all of the rise associated with the ECB’s asset purchase program (see chart).
“We believe the comments are likely to be dovish and may hint the ECB is prepared to expand easing if necessary,” BN[[ projects.
“Weekly EPFR data highlights that outflows from EM were at their highest level since May 2013 – the time of the initial Taper Tantrum. This partly reflects a broad-based unwind of the EUR-funded carry trade and while volatility and uncertainty remains elevated, continued unwind of carry trades is likely, hence supporting the EUR,” BNPP adds.
“We expect the move higher in both EURUSD and EURGBP to prove overdone if and when risk sentiment stabilizes on a more sustained basis,” BNPP projects.
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