The EUR remained under pressure, mainly on the back of further diverging monetary policy expectations. This is mainly due to the view of Friday’s US labour data making a case for further rising Fed rate expectations.
The ECB, in contrast, is likely to keep an aggressive policy stance. Nevertheless, it cannot be excluded that central bank President Draghi will account for stabilising growth conditions. This may be reflected in higher growth and stable long-term inflation forecasts.
Regardless of such an outcome we expect EUR upside to remain strongly limited and the risk to stay on the downside. This is especially true as Draghi will keep an aggressive monetary policy stance and as investors’ focus will directly shift to Friday’s US labour data.
As such we continue to advise in favour of selling EUR rallies, in particular against the USD. This is especially true as Friday’s US labour data should keep investors’ Fed rate expectations well supported to the benefit of the greenback.
We remain short the pair.
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