EUR Into Next Week's ECB: Buy EUR/CHF, Sell EUR/GBP - Credit Agricole

EUR Into Next Week's ECB: Buy EUR/CHF, Sell EUR/GBP - Credit Agricole

Although, from a broader angle, it has been range-bound, the EUR has been under pressure of late. This appears to be on the back of external factors such as rising Fed rate expectations or falling EU-referendum-related uncertainty. Elsewhere, improving risk sentiment may have increased selling interest in low yielders’ such as the single currency. In order to trigger a sustainable trend, changing rate expectations may be needed and that shifts investors’ focus to next week’s ECB monetary policy announcement.

Although ECB members have repeatedly stressed that more can be done if needed, it appears as though more time is needed in order to evaluate the impact of the latest policy steps on the economy. It must be noted that relatively stable inflation expectations as measured by 5Y inflation swaps may indeed enable the central bank to remain in ‘wait and see’ mode for longer.

In an environment of unchanged rate expectations external factors will continue to drive the currency. When it comes to crosses such as EUR/CHF we believe further upside is likely. Pairs such as EUR/GBP may suffer on the back of rising BoE rate expectations.

Data wise next week’s focus will be on the preliminary May CPI release.