Bank of America Merrill Lynch FX Strategy Research believes that on balance the ECB meeting today suggests more positive risks for the EUR.
“The pre-ECB EURUSD level was a key threshold for the market, as this was the level at which the ECB used to intervene verbally in the past to express concerns about the strong currency and its negative implications for inflation. By avoiding such statements today, Draghi has effectively removed the acceptable EUR ceiling for the ECB.
Further EUR appreciation could become easier, as the ECB seems to have given up trying to ”control“ the currency. In practice, we do not see what policies the ECB could use to weaken the EUR, as they have removed the option to reduce depo rates further and they have to taper QE soon because of the issue limit and the capital key.
These policy constraints may explain why Draghi gave up on the currency today. But something has been lost in the process and the Euro could now appreciate freely if Eurozone data keeps improving,” BofAML argues.
Source: Bank of America Merrill Lynch Rates and Currencies Research
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