Forex Flash: EUR/USD buys on dips as ECB distances from Fed – TD Securities (Barcelona) - Following the larger than expected LTRO repayments announced by the ECB today, shrinking the ECB balance sheet, the EUR reacted accordingly by strengthening to higher levels, above the 1.3400 psychological level and currently capped at 1.3470.

“Since QE programs began in 2008, the relative size of the Fed and ECB balance sheets has been strongly connected with the level of EUR/USD, so the notion that the ECB’s assets are shrinking while the Fed’s are still expanding at a decent rate is fairly significant”, wrote analyst Shaun Osborne and Greg Moore, adding that “it is one of the key fundamentals arguments for a stronger EUR/USD despite the relative state of the economies”. 

The stronger than expected German IFO print also contributed to the EUR optimism. “The pair has nearly tested the 2012 high of 1.3485, above which 1.36 comes into view”, they wrote, recommending buys on dips at the moment.