Danske Research discusses EUR outlook in light of today’s ECB policy decision.
“The FX market saw little reaction on the confirmation to end the APP and the introduction of the so-called ‘enhanced’ forward guidance. However, EUR slid initially during the press conference on soft comments from Draghi on the balance of risks. Crucial for the EUR is the fact that forward guidance on rates remained time-dependent which means that rate hikes are not imminent;this, on the one hand, puts a lid on EUR strength near term.
However, the fact that reinvestments were linked to the first rate hike is a key hint that the next move from the ECB is higher policy rates which is in itself a hawkish signal and a key cue to the FX market that we are now exiting ‘crisis mode’ in the eurozone; this, on the other hand, puts a floor under EUR.
On the whole, today’s ECB messages do not change our view that EUR/USD is a range around 1.13 on 0-3M horizon with potential for a clear rebound mid 2019 into the 1.20s,” Danske argues.