Nomura FX Strategy Research comments on today’s ECB policy decision noticing that the EUR’s reaction to the ECB’s decision to remove its rate-cutting bias was muted.
“We think the market needs to absorb event risks in the near future, such as the UK general election today and the FOMC meeting next week which may also limit FX market reactions for now,” Nomura adds.
“The change in the forward guidance announced today may be viewed as a small step, but we think this will sustain further EUR appreciation into H2. The change in forward guidance, which reflects the recent improvement in economic momentum, will likely increase the sensitivity of EUR rates to positive economic data further. Term premium of EUR rates will likely rise amid expectations for tapering and this should support EUR appreciation,” Nomura argues.
In line with this view, Nomura maintains its long EUR/USD* recommendation targeting a move to 1.15.
EUR/USD is trading cirac 1.11.85 as of writing.
Source: Nomura Securities Research
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