Analysts at Nomura argued that risk appetite has improved over the last week as Italy fears have receded.
Key Quotes:
“In the G10 FX space, the dollar has underperformed while European crosses have bounced back.”
“Furthermore, communication from the ECB has been more positive this week. ECB officials have moved towards communicating that the June ECB meeting is “live” for a decision on the APP.
ECB Chief Economist Peter Praet said yesterday while mentioning the negotiated wage data that “there is growing evidence that labour market tightness is translating into a stronger pick-up in wage growth”. He also said “the underlying strength in the euro area economy and the fact that such strength is increasingly affecting wage formation supports our confidence that inflation will reach a level of below, but close to, 2% over the medium term.”
ECB officials’ recent hawkish communication is partly intended to send a message that ECB policy will not be affected by Italian politics, but Mr Praet’s comments suggest the ECB’s view on inflation is also improving. We re-entered EUR/USD long positions yesterday, while keeping our EUR/JPY call options.
Further EUR recovery now looks likely into the ECB meeting and its annual gathering in Sintra, as we expect the ECB to maintain its optimistic communication on the back of the stronger wage and inflation data.”
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