EUR: Gauging ECB for direction? - ING

According to Viraj Patel, Research Analyst at ING, it’s clear that investors are going into the April ECB meeting today with very low expectations – which suggests the risk-reward favours a higher EUR.

Key Quotes

“Only a scenario in which President Draghi ratchets up the downside risks to the economic outlook would in our view warrant a further dovish re-pricing of ECB policy expectations. The flatter EZ OIS curve and lower EUR risk-reversals since March suggests that markets have already been aptly adjusting to the softer EZ data outturns – and so any acknowledgement of the latter by the ECB should not be ‘new news’ for investors.”

“The hawkish tail risk is that Mario Draghi expresses a willingness to look through the recent softening of leading EZ economic indicators – with the intention of pressing on with policy normalisation plans (the first step being a 2018 end to QE). This would re-kindle some of the more bullish EUR spirits – sending EUR/USD back above 1.2200/50.”