EUR/USD: Not see much upside given the ECB’s message is unlikely to be supportive – MUFG

Next week, will be the European Central Bank (ECB) meeting. According to analysts at MUFG Bank the central bank is set to dent any upside potential for EUR/USD. They see Lagarde pushing back aggressively on market pricing, consistent with the new monetary strategy.

Key Quotes:

“One highlight of this week has been the resignation of Jens Weidmann from the ECB two years into his second eight-year term, citing personal reasons. While it is easy to dismiss this or even conclude it as being a dovish development with a hawk set to be replaced, the event could well be an indication of the scale of opposition building to the ECB’s current monetary stance. However, we do not expect possible building opposition to be on show next week and expect President Lagarde to push back strongly against the recent shift in rate expectations.”

“Lagarde is also going to have added justification given the increased evidence that supply constraints are curtailing economic activity. While the advance manufacturing PMI picked up in October, the services component was much weaker than expected, suggesting the energy price spike could be starting to impact sentiment on the consumer side.”

“The dollar remains under downward pressure with global risk appetite improving. The avoidance of default in China could see this momentum continue but we do not see much upside for EUR/USD given the ECB’s message is unlikely to be supportive.”