EUR has been among the underperformers in the G10 FX so far this week and
the selling pressure on the single currency seems to persist despite
the fact that Draghi did not offer many clues about what the ECB will do
to address issues like asset scarcity and the pervasive flatness of the
EGB bond yield curve.
With QE taper concerns seemingly abating after the ECB meeting and risk sentiment fairly firm, EUR may continue to underperform in the near term.
A word of caution is warranted, however. While the ECB managed to
arrest the rally of EGB yields for now, the risk of QE taper should
persist and become an important long-term positive for EUR in the next
3M to 6M. In the near-term, investors will pay closer attention to the
upcoming Eurozone data releases.
A continuing build-up of positive economic surprises (captured by
Citi’s Economic Surprise indicator (ESI)) could highlight that the
latest EUR/USD selloff is at odds with the relative quality of the data
releases out of the Eurozone and the US.
All that could help EUR/USD consolidate before long.