The EUR has been capped of late, mainly on the back of lower than expected growth data and as most ECB members supported the view of more aggressive monetary policy action being considered as soon as next month. However, it appears that the jury is still out when it comes to aggressive measures such as cutting the deposit rate negative.
Indeed, ECB Executive Board member Yves Mersch indicated that incoming data still has to confirm an outlook of deteriorating conditions and that negative rates may have unintended consequences even if they are a tool on the shelf.
Going forward, we advise against selling the EUR around the current levels.
This is especially true as a lower currency should automatically decrease the probability of more aggressive ECB policy action and as central bank members’ rhetoric is unlikely to become even more dovish anytime soon.