EUR/USD: Expect A Knee-Jerk Reaction From Next Week’s ECB Meeting – Danske

The European Central Bank is expected to leave the rates unchanged but may tweak its statement. What is on the cards? Here is a preview from Danske.

Here is their view, courtesy of eFXnews:

Danske Research discusses its expectations for next week’s ECB meeting and the likely EUR/USD reaction around the meeting.

“The increasingly more complicated task of adjusting monetary policy communication without triggering a sell-off will be on display at next week’s ECB meeting. We expect the ECB to strike a compromise between the doves (led by Draghi and Praet) and the hawks (led by Weidmann and Coeuré) where it removes the QE bias.

We expect the ECB’s likely removal of QE flexibility in March to support EUR/USD only marginally with knee-jerk reaction likely positive but dovish tone at the press conference to moderate this somewhat,” Danske argues.

“We think this move on QE is comparable to early June last year when the ECB removed its rate flexibility(rates to remain at present or lower levels): back then, the euro did not react on impact, but started to move following the ‘normalisation’ talk in Sintrain late June.

Near-term, we still see the cross in the 1.21-1.26 range. Note that political risks(Italian election and SPD vote Sunday) could weigh ahead of the ECB’s decision,” Danske adds.

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