Short Euro on ECB’s less QE and more rate cuts – Morgan Stanley

Analysts at Goldman Sachs offer their outlook on the EUR/USD pair on the likely European Central Bank (ECB) monetary policy decision due this Thursday.

Key Quotes:

“ECB may be more focused on steepening the yield curve that easing lending conditions.

If so, that argues for less QE and more rate cuts. That's a scenario that could lead to short-term euro selling as it's used to fund carry trades.

This weakness would be short-lived in our view, and would be an attractive entry point for EUR longs. The more EUR is used as a funding currency, the more it is likely to rally should a risk shock lead to carry trade unwinds.

We think any risk rally in the coming weeks is tactical and unlikely to last long, so this unwind seems likely to us.”