Barclays Capital FX Strategy Research expects the EUR to face some roadblocks and holds a base case for EUR/USD to range trade.
“We believe that the ECB, with a still significant output gap and the benefit of having seen how the inflation story has played out thus far in the US, will likely err on the side of caution and take a gradual approach to stimulus removal. We would not be surprised to see attempts to dampen reactions in the EUR and European rates,” Barclays argues.
“Consequently, we would fade the strength in EUR/USD as markets will likely reassess the balance of risks around monetary in the coming weeks,” Barclays advises.
Barclays expects the ECB minutes on Thursday to provide a first catalyst for such reassessment and doesn’t expect any material shift in language around the current risks to inflation.
Source: Barclays Research
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