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Apr 05 - 12:55 PM

Credit Agricole: Next Week's ECB Meeting to Spur EUR Selling

By eFXdata  —  Apr 05 - 11:30 AM

Synopsis:

Credit Agricole predicts that the upcoming ECB policy meeting could serve as a catalyst for a new round of EUR selling. This outlook hinges on two pivotal developments: President Christine Lagarde potentially signaling a rate cut in June and an update in forward guidance suggesting further easing measures. The potential for renewed currency weakness is bolstered by the EUR/USD's current position, which trades at a significant premium relative to both nominal and real EUR-USD rate spreads.

Key Points:

  • ECB Meeting's Impact on EUR: Credit Agricole anticipates that next week's ECB meeting may induce a wave of EUR selling, especially if it sets the stage for an imminent rate cut and indicates a trajectory of continued monetary easing.

  • President Lagarde's Role: A 'pre-announcement' by ECB President Christine Lagarde about a June rate cut could significantly influence market sentiment and expectations regarding the ECB's future policy direction.

  • Forward Guidance: Updated forward guidance from the ECB that hints at further easing measures could confirm the bank's dovish stance, impacting the EUR's valuation against other currencies.

  • EUR/USD Valuation Concerns: The current premium at which EUR/USD is trading, when compared to the nominal and real rate spreads, suggests the pair is vulnerable to selling pressure, particularly in anticipation of the ECB meeting and forthcoming US CPI data.

Conclusion:

The ECB's forthcoming policy meeting is poised to be a pivotal moment for the EUR, with potential announcements and updated forward guidance likely to influence the currency's trajectory. Credit Agricole advises a strategy of selling EUR on rallies in the lead-up to the meeting, cautioning that the pair's current valuation may not be sustainable given anticipated policy shifts and data releases.

Source:
Crédit Agricole Research/Market Commentary

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