EUR/USD: Range-Bound Week; Cable: Not Yet A Sell - Credit Agricole

EUR: ECB outlook argues for range-bound week.

Regardless of the latest easing in risk appetite EUR has remained remarkably stable in the past week. We expect similar stability in the week ahead with ECB board members seemingly willing to leave more time to evaluate the latest policy measures’ impact on the economy. Thus in the absence of any Fed policy reassessment, the status quo in EUR/USD should persist.

Support this view, ECB Governing Council member Ewald Nowotny reiterated this week that there is no need for additional policy action in the near-future. It must be noted too, that next week’s data calendar is relatively empty when it comes to market moving events. Although central bank President Draghi’s speech at the quarterly hearing before the committee on economic and monetary affairs of the European parliament will attract attention, he is unlikely to provide new insights.

All of the above suggests that the EUR will be driven by external factors such as Fed monetary policy expectations and global risk sentiment.

GBP: Not yet a sell.

The GBP has been capped recently, mainly on the back of the view that the UK economy is unlikely to keep the last few quarters’ growth momentum. Elsewhere, speculative long positioning close to multi-year highs may have decreased buying interest too. However, it must still be noted that expanding business activity makes a case of further improving labour market conditions to the benefit of stabilizing price developments.

From that angle we do not expect next week’s employment and inflation data releases to make a case of falling BoE rate expectations. Accordingly we advise against selling the GBP around the current levels.

Elsewhere, BoE governor Carney will testify to the House of Commons Treasury Committee on the Financial Stability Report. His testimony is unlikely to have any major currency implications.

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