Petr Krpata, chief EMEA FX and IR strategist at ING, suggests that while the ECB is likely to stay on hold this week (though the chance of a pre-emptive cut today is non-negligible), they are looking for a dovish message.
Key Quotes
“In particular, we expect (a) the ECB to change the forward guidance and signal upcoming cuts (in September and potentially beyond), thus cementing the markets’ dovish expectations; and (b) President Draghi to deliver a dovish press conference, with a potential hint at QE.”
“The latter in particular (as more than one 10 basis point cut is fully priced in for the September meeting) should be a negative factor for the euro over coming months as expectations for ECB quantitative easing will continue to build.”
“For today, the dovish bias suggests EUR/USD breaking the 1.1100 level, particularly when (a) EUR/USD does not exert any meaningful risk premia; and (b) speculative EUR/USD shorts are fairly light.”
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