EUR/USD: Awaiting Better Levels To Sell - Credit Agricole

[thenews]

The EUR has been capped on the back of ECB President Draghi reassuring yesterday that the central bank will not hesitate to act should it be necessary. Most interestingly it was stressed that in the light of the recent financial turmoil, the state of transmission of monetary impulses by the financial system and in particular by banks will be analysed and if either of these two factors entails downside risks to price stability, one will not hesitate to act. However, overall Draghi failed to make a case of increasing already high easing expectations further.

Looking ahead ECB members may be more cautious in building up easing expectations after last year’s disappointment. All of the above means that the EUR should be mainly driven by global risk sentiment, at least in the short-term. Even if sentiment improved for most of the last few trading days, we believe that caution remains warranted. This is especially true as major central banks such as the Fed are unlikely to make a case of increasing liquidity expectations anytime soon and as global growth expectations remain capped. If anything this week’s Chinese trade data should have increased global recession fears even further, irrespective of the PboC’s reassuring comments with respect to the currency.

As a result to the above outlined conditions it cannot be excluded that better levels to sell the single currency will be reached. From a broader angle, however, we stay of the view that rallies should be sold.

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