EUR/USD: dip buying demands for EUR to remain strong - Nomura

There were no major surprises from the ECB, which should support the EUR appreciation trend into the October meeting. 

Key Quotes:

"President Draghi commented on FX volatility in the introductory statement, as a source of uncertainty. This is different from the previous meeting. He also mentioned that foreign exchange rates must be taken into account in decisions, as it is important for growth and inflation. However, he also said “the incoming information, including our new staff projections, confirms a broadly unchanged medium-term outlook for euro area economic growth and inflation.” 

2019 inflation downgrade was indeed limited. President Draghi also admitted core inflation is doing slightly better too. He also said that financial conditions are still broadly supportive, even though the conditions were unquestionably tightened. These communications suggest EUR appreciation has not yet changed the ECB view materially. There was no detailed information on QE’s future, as widely expected. However, Draghi said the bulk of QE decisions will probably be taken in October, while repeating to decide on policy calibration in fall too. 

Our economists continue to expect the Bank to announce tapering at the next meeting. There are a couple of potentially dovish elements (mention on FX volatility in the introductory statement, 2019 inflation forecast downgrade, and no commitment on October announcement), but the market has likely already priced them in, as these were mostly leaked before the meeting. In fact, cautious comments on EUR were expected by 67% of economists, based on a Bloomberg survey. 

President Draghi’s comments on EUR volatility, not level, may not be strong enough to change the trend. We expect dip buying demands for EUR to remain strong into October meeting, on the back of tapering announcement expectations. 

Thus, we keep bullish EUR positions."