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According to ING analysts, the risk to EUR/USD after the forthcoming ECB meeting are tilted to the upside, following the recent comments of various ECB Governing Council members about the lack of urgency in re-starting QE and strong market expectations.

Key Quotes

“Another deposit rate cut (likely 20 basis points) and generous pricing of Targeted Longer-Term Refinancing Operations (cheap loans) seem to be set in stone, but it will be the QE (non-)announcement and size of the programme that will determine the EUR/USD price action.”

“Unless the ECB goes big (EUR 40-60 billion per month) we expect either limited euro reaction or a spike in EUR/USD higher – the former being a response to the EUR 30bn QE size, the latter a responce to a delay of the bond buying programme.”

“In the case of the ECB delaying the QE announcement, we look for EUR/USD to converge to the 1.1250 level as this would materially disappoint markets. While the balance of probabilities favours higher EUR/USD (particularly after the USD gains over the past two months), we expect EUR/USD strength to be temporary.”

“This is because disappointing ECB monetary stimulus will likely increase market concerns about the eurozone’s economic outlook and lead to a further deterioration in growth and inflation expectations. This could lead to an even bigger need for subsequent ECB easing. Hence, a potential EUR/USD rebound this week from lower-than-expected ECB easing should be seen as an attractive entry point to prepare for lower EUR/USD levels later this year.”