Given an expected further deterioration in Eurozone business sentiment, pressure upon EUR is unlikely to be alleviated in the week ahead.
Coming in the wake of the disappointing TLTRO take-up (EUR82.6bn versus consensus of around EUR125bn), such sentiment data can only support speculation surrounding a potentially more aggressive ECB policy move later this year.
In an otherwise quiet data-week, comments from ECB governing council members including Coeure, Praet, and finally Draghi (Thursday) will be watched closely. We do not expect them to deliver anything new, the TLTRO result will likely be discussed.
Thus, while we view the Fed as unchanged in its accommodative stance, such Eurozone-specific influence should see short-rate spreads widen pulling EUR/USD lower to test 1.28 this week.
As we highlighted last week, if the ECB is truly now more keenly focussed on improving Eurozone export competitiveness, the latest policy steps have been a success.
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