Cautious ECB means EUR/$ to still move lower before moving higher - ING

Reports that President Draghi will not be making any new policy announcements during his Jackson Hole speech next week may have come as a disappointment to EUR bulls hoping for a regime-shifting policy signal from the ECB chief, according to Viraj Patel, Research Analyst at ING.

Key Quotes

“Since the July ECB meeting, we have been arguing that markets might have got ahead of themselves when it comes to pricing in the ECB's next steps; less aggressive expectations over the timing and pace of QE tapering chimes with our message that EUR/$ will first move lower before moving higher from these levels. Without reading too much into yesterday's rumours, the absence of any policy discussion by Draghi does highlight the market-sensitive nature of monetary policymaking; gone are the days where central bank officials no longer worry about the market implications of their words (think Bernanke and the Fed’s “taper tantrum”).”

“This will be the focus of the July ECB minutes today (1130 GMT) – with investors watching for whether the Governing Council raise concerns over a premature tightening of financial conditions. While the EUR has so far shown the resilience of a boxer refusing to go down despite taking a few big hits, we believe that signs of a more cautious ECB over the coming weeks may see some of this resistance fade. We continue to see scope for a EUR/USD retrace towards 1.15 post-Jackson Hole.”