The euro has strengthened sharply following the ECB’s announcement of more aggressive easing, notes BTMU.
"The counter intuitive reaction sends a bullish signal for the outlook for the euro in the near-term. EUR/USD may now attempt to retest the top of its rough trading range over the last year moving closer to the 1.1500-level.
However, there is a risk that the market has overreacted initially which could see euro strength begin to fade as it does not appear fully consistent with further ECB easing.
The US dollar could also derive some support from next week’s FOMC meeting. The Fed is widely expected to leave its key policy rate unchanged. The main focus will be the Fed’s updated economic projections and policy signals. The market is widely expecting the Fed to signal that it expects to raise rates more gradually in the coming years potentially removing three to four hikes compared to their projections from December. However, the recent weakening of the US dollar has helped to ease monetary conditions which could result in the Fed sounding less dovish than expected. We are expecting the Fed to resume rate hikes in Q2," BTMU argues.
BTMU has turned bullish on EUR/USD around current levels seeing the pair trading in 1.10-1.14 range in the near-term.
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