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EUR/USD made a round trip to 1.2070 before falling back down, well under the 1.20 level. This could influence the decision by the European Central Bank when it decides on QE tapering. Here is the view from the ECB:

Here is their view, courtesy of eFXnews:

BTMU FX Strategy Research notes that  the important date for EUR monetary policy expectations remains 7th September.

“We expect some change in forward guidance on QE and a clear signal from Draghi that a change in QE was coming. However, the lack of comment on the level of the euro by Draghi in Jackson Hole should not be viewed as indifference. We should remember Draghi’s previous message covering the 3 P’s – Prudence, Persistence and Patience as key as the stance of monetary easing is slowly reversed. Draghi may well take the opportunity at the next policy meeting to reinforce the importance of those key words.

The level of the euro will become increasingly important.  The updated macroeconomic projections are likely to show a change in the assumed EUR EER-38 level. This can be offset by marginally better real GDP projections but if the euro was to continue to advance, the impact on inflation could not be ignored. Currently the ECB June projections assumed a 0.4% drop from the 2016 average. As of now, the EUR ERR-38 is 0.8% stronger – a 1.2ppt swing.

We should not assume the current indifference to euro appreciation is something that will persist indefinitely,” BTMU argues.

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