EUR: Sharp move towards 1.25 would be nearing the ECB’s pain threshold - ING

In view of Viraj Patel, Research Analyst at ING, it was always going to be a ‘Sisyphean task’ for Mario Draghi to prevent the euro from surging higher at yesterday’s ECB meeting – especially given the prevailing weak USD environment.

Key Quotes

“While policymakers cited exchange rate volatility as a new “source of uncertainty”, the fact that they are merely “monitoring” these risks for now is music to the ears of EUR bulls who are unlikely to be thwarted from pushing the single currency higher and testing the ECB’s limits. However, given the way the central bank has conditioned their inflation forecasts, we think that any sharp appreciation in EUR/$ beyond 1.20 – and heading closer towards 1.25 – would be nearing the ECB’s pain threshold (assuming ceteris paribus of course). More noise over the ECB’s disinflationary concerns in the near-term may keep EUR/$ upside contained to the 1.2160/70 area – which is the 50% retrace of the 2014-17 move lower.”