EUR: ECB policymakers playing the ‘good cop/bad cop’ routine for euro bulls - ING

Viraj Patel, Foreign Exchange Strategist at ING highlights key factors that could influence the shared currency and may limit further appreciation in the near-term.

Key quotes:
 
“After rallying to a fresh 3-year high – and holding the burden of a currency that is ‘hot right now’ – we see the EUR as being highly sensitive to 3 factors now: (1) EZ economic data surprises – namely inflation readings; (2) adverse political developments, with the immediate focus on the German coalition deal and a key vote this weekend; (3) ECB policy noise ahead of next week’s meeting (25 Jan).”

“Officials have been playing ‘good cop, bad cop’ for EUR bulls – with Villeroy citing FX moves as a source of uncertainty, while Weidmann noted that expectations for a mid-2019 ECB deposit rate hike are realistic. While the latter holds the key to further EUR upside, Villeroy’s cautious take is probably the ECB consensus and this may limit the EUR’s rally for now.”