When it comes to the Eurozone, ECB President Draghi failed to make a bigger case of additional stimulus measures being considered anytime soon. Even if Draghi left all options regarding a more aggressive stance open, he more or less reaffirmed that more time is needed in order to evaluate the latest policy measures’ impact on the economy. Most importantly he stressed that the single currency is not a policy target.
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Nevertheless, with speculative positioning balanced, rising ECB rate expectations would be needed in order to make a case of more sustainable currency upside from the current levels. For that to happen improving growth conditions may be needed. Altogether we keep a broader bearish stance on the EUR, in particular against the USD. This view is based on the notion that further improving US growth conditions will ultimately make a case diverging rate expectations.
Crosses such as EUR/CHF, however, should stay in demand. While the SNB remains ready to intervene if needed, Switzerland is facing considerably higher deflation risk, what is due to the strongly overvalued currency. This in turn suggests that the central bank is in a position to keep rates low for longer. At the same time the SNB’s policy mix should ensure that the franc is keeping a relatively low safe haven appeal.