The EUR has been well supported, regardless of weaker business activity in August. This is mainly due to position squaring on the back of improving risk sentiment as related to easing geopolitical tensions.
We stay of the view that the EUR is facing additional upside risk in reaction to today’s ECB monetary policy announcement.
At this point it appears premature to expect the central bank pre-announcing more aggressive policy measures such as quantitative easing. This is especially true as such a step may require further deteriorating growth and price developments in the Eurozone as a whole. From that angle it must be noted that the German economy ministry just recently stressed that the country’s growth forces are fully intact.
As a result to the above outlined conditions we advise against selling the EUR around the current levels as a further correction towards 1.33 cannot be excluded given still elevated speculative short positioning.
Credit Agricole