EUR/USD – neutral bias – (1.3450-1.3750).
The euro weakened initially against the US dollar following ECB monetary policy meeting hitting an intra-day low just above the 1.3500-level, but has since almost fully recovered lost ground.
The lack of negative euro reaction is likely mainly a reflection that the ECB had done such a good job of signalling in advance the easing measures announced at yesterday’s meeting.
We believe that the ECB met and may even have slightly exceeded investors’ high expectations of monetary easing. The combination of lowering interest rates, adding liquidity, strengthening forward guidance, and credit easing through targeted LTROs are likely to weigh modestly on the euro.
However, their negative impact on the euro was likely already almost fully priced ahead of the meeting.
The ECB’s signal that they are moving closer to purchases of private assets may also help to weigh on the euro in the near-term although the potential timing and scale of purchases remains unclear.