EUR/USD risk-reward ahead of ECB: ‘Not December 2016 all over again’

Credit Agricole on the euro

Credit Agricole CIB FX Strategy Research discusses the EUR outlook ahead of next week’s ECB October policy meeting in which The central bank is expected to announce its plans for the recalibration of its QE programm.

«It is widely expected that any extension of the asset purchases should come at a slower monthly pace with market views seemingly divided between a six-month extension at a pace of EUR40bn and a nine-month extension at a pace of EUR30bn,» CACIB notes.

«In terms of market impact, parallels with December 2016 — the last time around when the Governing Council extended its QE programme and sent EUR tumbling — seem inevitable. That said we note the differences, which could help EUR regain ground after the ECB meeting. 

….All in all, with markets having cut some of their EUR longs but with Eurozone fundamentals and FX valuations still quite favourable, we believe that the longer-term risks for the currency are still to the upside,» CACIB argues.

In line with this view, CACIB sticks with its longs EUR/USD and EUR/CHF in its model FX portfolio.

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