EUR: The window of opportunity for an ECB-led rally may now be open - ING

Viraj Patel, Research Analyst at ING, explains that the move by Catalan leader Puigdemont to ‘suspend’ the referendum result was seen as a conciliatory outcome and we have seen a trivial relief rally in the EUR and think that this may just be the start of a two-week window of EUR strength ahead of the big Oct ECB meeting.

Key Quotes

“”Political uncertainty hasn’t fully faded, we see the focus for the currency turning back to the positive cyclical EZ economic story and prospects of a more hawkish ECB QE taper announcement later this month. Certainly our house view for a drop to EUR 20-25bn monthly QE purchases from Jan-18 (albeit for slightly longer) could see a one-off move higher in EUR pairs. We like long EUR against the USD (s/t target 1.20), JPY (135) & CHF (1.17).”

“As for Scandi FX, the focus today will be on central bank talk. Deputy Governors at both Riksbank and Norges Bank are scheduled to speak and may shed some light on the respective central banks next policy moves. Of the two, it is Riksbank that is likely to turn hawkish first and this policy divergence story could easily see NOK/SEK testing parity very soon. A potential catalyst is Swedish CPI tomorrow.”