According to Viraj Patel, Research Analyst at ING, the EUR has started the New Year pretty much where it left off – on the up and not shy of any positive catalysts.
“This is certainly the case when considering the backdrop of thriving economic activity and above-potential EZ growth, renewed sentiment over deeper European integration and the markets’ underestimation of the pace and extent of future ECB policy normalisation. These positive factors underpin our view for EUR/USD to move up to 1.25 in 2Q18. However, ahead of this we do look for stability – not least because of a realisation that a sharp rally beyond 1.25 in 1Q18 would test the ECB’s ‘pain threshold’ and elicit a relatively dovish reaction from the central bank.”
“A reality check on EZ inflation data and Italian elections may implicitly help the ECB’s cause by holding EUR bulls at bay in 1Q18. But EUR/USD making a charge towards 1.25 is merely a matter of time.”
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