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FX Outlook: What To Expect For Euro Post-ECB

By Kathy LienForexJul 22, 2021 04:50PM ET
www.investing.com/analysis/fx-outlook-what-to-expect-for-euro-postecb-200593102
FX Outlook: What To Expect For Euro Post-ECB
By Kathy Lien   |  Jul 22, 2021 04:50PM ET
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The European Central Bank’s monetary policy announcement was the most important event this week, but it did not inspire any breakout moves for EUR/USD. This, of course, is exactly what central bankers hoped for, which is limited volatility when big announcements are made. For the ECB, its first major inflation change in two decades was announced earlier this month and today, making the change in forward guidance official. EUR/USD initially traded above 1.1830, but by the London close, it dropped below 1.1760 intraday. We talked about the possibility of EUR/USD rallying after the rate decision in yesterday’s note, but the distance that the ECB has put between itself and other central banks prevented a durable bounce. 
 
In today’s meeting, the ECB confirmed that it is in no rush to raise interest rates. Not only did it avoid any taper talk, which is a sharp contrast to other central banks. It also amended its forward guidance to account for higher inflation tolerance. From July forward, the ECB expects to keep interest rates at their present or lower levels until inflation reaches 2% well ahead of its projection horizon and remain durably at or above that rate for the rest of the projection period. Although ECB President Christine Lagarde said there were expectations for strong growth in the eurozone economy in the third quarter, the outlook for inflation is subdued and the Delta coronavirus variant is a “growing source of uncertainty.” 
 
Between the change in forward guidance, Lagarde’s subdued inflation outlook and its concerns about the Delta variant, the ECB has made it very clear that it doesn’t share the Federal Reserve, Reserve Bank of New Zealand, Bank of Canada and Bank of England’s view that it may be time to start reducing asset purchases. The euro was the day’s worst performer, and we expect the currency to remain under pressure. The 1.1700 level is likely to be tested in EUR/USD, but the euro is the most vulnerable against sterling and the commodity currencies. Eurozone PMIs are due for release on Friday. Reopening should bolster activity, which could trigger a near-term boost for the currency but extended gains are not expected.
 
The U.S. dollar was mixed, rising against the euro, the Swiss Franc and Australian dollar, steady versus the Japanese Yen and New Zealand dollar and falling against sterling and the Canadian dollar. Jobless claims rose more than expected and existing home sales rose less, but the median price of a home sold rose to a new all-time high. Treasury yields resumed their slide as coronavirus cases in the U.S. rose 53% week over week, with the Delta variant accounting for 83% of new cases. This variant has already prompted fresh restrictions in other parts of the world, and the worry is that come fall, the same will happen in the U.S. Canadian retail sales and U.K. PMIs are scheduled for release on Friday. Stronger numbers are expected as fewer restrictions bolsters economic activity in both countries.   
FX Outlook: What To Expect For Euro Post-ECB
 

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FX Outlook: What To Expect For Euro Post-ECB

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Comments (7)
Akhtar Bhatti
Akhtar Bhatti Jul 25, 2021 2:12PM ET
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Nice analysis Madam
Moon Nobel
Moon Nobel Jul 25, 2021 12:21AM ET
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hello everyone
Nitin Maheshwari
Nitin Maheshwari Jul 23, 2021 9:08AM ET
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"it very clear that it doesn’t share the Federal Reserve, Reserve Bank of New Zealand, Bank of Canada and Bank of England’s view that it may be time to start reducing asset purchases." I dont know when fed has secretly shared the view to taper or are the minutes leaked/powell secretly confirmed to Kathy before the meeting that we are going to taper
Muhammad Toheed
Muhammad Toheed Jul 22, 2021 9:28PM ET
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I am from Pakistan
Chris Poulos
Chris Poulos Jul 22, 2021 9:28PM ET
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no youre not
John Smit
John Smit Jul 22, 2021 9:28PM ET
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Good for you.
Mohamed Alwale Ali
Mohamed Alwale Ali Jul 22, 2021 8:18PM ET
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I'm African
Okafor Chidera
Okafor Chidera Jul 22, 2021 6:28PM ET
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Thomas Read
Thomas Read Jul 22, 2021 5:44PM ET
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sell Eur/Nzd on a corrected bounce.
CS One
CS One Jul 22, 2021 5:44PM ET
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buy eurnzd , nzd will drop more than euro , dont trust Thomas read , he is a paid schill
 
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