EUR: Draghi’s Mission Impossible is equal to a shallow correction lower at best - ING

The burning question for FX markets at today’s ECB meeting is “Will – and can – President Draghi talk the euro lower?”, according to Viraj Patel, Research Analyst at ING.

Key Quotes

“For the past week, we’ve argued that in the current environment – there is very little the ECB can do to stem the tide of a stronger EUR. Moreover, in a backdrop of broad $ weakness against all major currencies – and the EUR trade-weighted index (which matters more for the economy) in fact staying fairly stable within a narrow range since August – there may be little macro-related impetus for the ECB to actively talk the euro lower.”

“Still, markets may see Draghi’s mission today – should he wish to accept it – as keeping a lid on EUR/USD below 1.25. In the coming months, we believe this will prove to be a mission that is ultimately impossible. Below is a scenario analysis taken from our ECB crib sheet; we look for any post-ECB knee-jerk move lower in EUR/USD to be fairly shallow – with the 1.2300/50 area providing support. EUR/GBP vulnerable to break below 0.87.”