Bank of America Merrill Lynch FX Strategy Research expects the ECB at its June meeting on Thursday to upgrade the balance of risks and remove the “or lower” statement on rates.
“This would still make for dovish communication from the ECB, in our view. We see the balance of risks this week more toward an even more dovish outcome (no change at all to forward guidance, with Draghi merely admitting a ”discussion“on the subject in the Q&A) than towards a more hawkish stance (immediate removal of the notion that policy rate hikes would have to wait ”well after“ the end of QE),” BofAML adds
On the EUR front, BofAML thinks that the risks for the EUR are slightly to the downside from the ECB meeting. However, BofAML would expect the market to buy the EUR dip, if we get one.
“Our quant indicators and flows still show strong demand for EUR. We also note that the market bought the EUR after dovish comments by Draghi and negative headlines from Greece and Italy pushed it down last week. The fact remains that the ECB will announce this fall its plan for the end of QE next year. Our favorite EUR long trade for the rest of the year is against GBP, as we expect a difficult start for the Brexit negotiations,” BofAML argues.
EUR/USD is trading circa 1.1270 and EUR/GBP circa 0.8740 as of writing.
Source: Bank of America Merrill Lynch Rates and Currencies Research
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