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Mario Draghi tried to be as dovish as possible, but markets didn’t buy it. The move up on EUR/USD was compounded by the new Trump troubles. What’s next? Here are four opinions:

Here is their view, courtesy of eFXnews:

EUR/USD: Post-ECB: Towards 1.20 Before A Meaningful Correction – SocGen

Societe Generale Cross Asset Strategy Research highlights 2 key points from EUR price action in reaction to today’s July ECB meeting.

“Firstly, this is a meeting in late July, a time when market reactions should not be over-interpreted.  Secondly, the FX market typically doesn’t react to shifts in expectations about policy moves in the very short term, and we heard nothing today to alter the view that the ECB is embarking on a gradual shift towards policy normalisation, which is inconsistent with an undervalued currency,” SocGen notes.

EUR/USD: What’s Next?  

“EUR/USD is still moving upwards in tandem with a gradual tightening in real and nominal yield spreads. The euro is rising faster than seems consistent with the move in yields, but that’s consistently been the case since March.  At some point, this is going to result in a correction for the euro, but we suspect that EUR/USD will reach 1.20 first,” SocGen argues.

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EUR: ECB likely To Announce Details Of QE Exit Strategy At Next Meeting – SEB

SEB Research comments on the outcome of today’s ECB July policy meeting.

The ECB left policy rates, QE programme and its forward guidance in terms of bias, timing and sequencing unchanged at its meeting today. The outcome was in line with what majority of forecasters had expected.

Our impression is that Draghi struggled to not say anything that would worry the markets,  but at the same time not make promises he did not have support to fulfill. Possibly this could be due to differing views within the governing council, even-though Draghi said that the council was unanimous.

Exit strategy was not discussed during the meeting and we reiterate our view that the ECB is likely to announce changes to the QE programme at its next meeting on Sep 7,” SEB argues.

EUR/USD: Post-ECB: Risk Of S/T Correction Is High; Buy Any Dips – Danske

Danske Bank FX Strategy Research notes that EUR/USD  gained during today’s ECB Draghi’s press conference and still trades in  overbought territory.

“Hence,  we see risks skewed on the downside in the near term.  In particular, we note that EUR/USD price actions contrast with European fixed income markets, where, for example, 2Y EUR swap interest rates fell back after the press conference, while EUR/USD remained higher.

Our short-term financial models cannot fully explain the move higher in EUR/USD (given lower interest rates).

Moreover,  positioning and other short-term technical measures such as the RSI also indicate that the risk of correction lower in EUR/USD is high,” Danske argues.

However,  we maintain the view that any dips in EUR/USD are likely to prove short-lived and, strategically, we still like to buy the cross on dips.

EUR/USD: Post-ECB: No ECB Ceiling For EUR Suggests Further Gains Likely ‘Easier’ – BofAML

Bank of America Merrill Lynch FX Strategy Research  believes that on balance the ECB meeting today suggests more positive risks for the EUR.

“The pre-ECB EURUSD level was a key threshold for the market, as this was the level at which the ECB used to intervene verbally in the past to express concerns about the strong currency and its negative implications for inflation. By avoiding such statements today, Draghi has effectively removed the acceptable EUR ceiling for the ECB.

Further EUR appreciation could become easier, as the ECB seems to have given up trying to  control  the currency. In practice, we do not see what policies the ECB could use to weaken the EUR, as they have removed the option to reduce depo rates further and they have to taper QE soon because of the issue limit and the capital key.

These policy constraints may explain why Draghi gave up on the currency today. But  something has been lost in the process and the Euro could now appreciate freely if Eurozone data keeps improving,” BofAML argues.

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