ECB: More downside to EUR - ING

ING analysts are seeing downside risk to EUR/USD coming from the ECB meeting.

Key Quotes

“Despite the market already pricing a 40% probability of a 10bp cut this week, more than one 10bp cut by September and close to 20bp overall easing by the end of this year, we see a downside risk to EUR/USD coming from the ECB meeting this Thursday. This is because:

(a) The ECB is likely to change the forward guidance and signal the upcoming cuts (in September and potentially beyond), thus cementing the markets' dovish expectations, and

(b) President Draghi is likely to deliver a dovish press conference, with a potential hint at QE.

The latter in particular should be a negative factor for EUR over the coming months as the expectations for ECB QE will continue to build.”

“On a short term basis, EUR/USD currently does not exert any meaningful risk premia. Coupled with the fairly light short EUR/USD positioning, there is scope for EUR/USD downside stemming from the dovish press conference (the short-term effect – coming days) and a further build-up of ECB QE expectations (the medium-term effect – coming months).”