EUR/USD is holding its breath ahead of the all-important European Central Bank decision. Where will the pair go?
Here is their view, courtesy of eFXdata:
Bank of America Merrill Lynch Research discusses its expectations for the ECB January policy meeting on Thursday.
“Dovish tone, but no policy changes yet. The first ECB meeting after the end of QE could have come under better auspices. The data flow, already consistent with the balance of risks “moving to the downside” in December, has deteriorated further. However, we are not expecting any drastic steps from Draghi this week, apart from acknowledging that the balance of risks has shifted to the downside and cautiously laying the ground for some “sweeteners” to come in March,” BofAML projects.
“We believe investors already expect a dovish tone, suggesting limited market impact. Should the ECB indeed change the balance of risks, any front-end rally is likely to be limited. In the medium term, we prefer to be buyers of dips in the front-end, given our economists’ below-consensus growth and inflation forecasts. We would also not expect a sustained EUR impact from the meeting. We remain constructive on the EUR in the medium term, but this is primarily driven by our bearish USD view and subject to a number of risks. We also note negative EUR short-term risks from bearish recent flows,” BofAML adds.
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