ECB Preview: The balance of risks is modestly skewed to a higher euro – ING

As the ECB officials already adjusted market expectations for the European Central Bank meeting tomorrow and no tapering is expected, the impact on EUR/USD should be limited. On balance, risks are skewed to modestly higher EUR/USD as expectations are low and communication missteps cannot be ruled out, economists at ING report.

Limited impact on the euro

“Given the expectations of no change in guidance on asset purchases, the balance of risks is modestly skewed to a higher EUR, should the press conference not reiterate the tapering on hold message strongly enough or deliver some communication missteps. While not our base case, the probability of this outcome is higher than of an even more dovish message vs the current already cautious market expectations. Hence the balance of risks is skewed to modestly higher EUR/USD, even if our base case is for a largely unaffected euro after the meeting.”

“We note that comments from Banque de France Governor, Villeroy de Galhau, in late May did coincidentally put a top in EUR/USD at 1.2250. He said the ECB would be as least as patient as the Fed. We read this as an expression of EUR/USD sensitivity from the ECB and it will be interesting to see whether these comments re-appear in some form.”