EUR likely to be left without a strong directional push from ECB - TDS

Analysts at TDS suggest that their base case suggests the EUR will be left without a strong directional push from the April ECB meeting.

Key Quotes

“The region's growth dynamics may come off the boil, at least relative to the frothy expectations that have built up in recent months, while inflation pressures remain muted. These factors seem well telegraphed, however, and wellpriced as a result. At the same time, we note that the Trade-weighted EUR has remained remarkably stable in recent months. The sharp appreciation seen last year has been replaced with a noticeable lack of volatility. This, we think, should keep the ECB from sending any strong signals on the EUR.”

“Against this backdrop, we think Draghi will have to sound genuinely concerned about the outlook for the FX market to react to how policymakers characterize the growth or inflation trajectory. With this highly unlikely, in our view, our core scenario is for currency investors exhibit a muted reaction overall. EURUSD remains well anchored within its current trading range around 1.2350. We do not expect any real reason to emerge for markets to challenge either the ultimate high (1.2555) or low (1.2155) of this range as a result of this meeting. Ahead of these boundaries, we see intermediate support around 1.2215 and resistance near 1.2475.”

“That said, we do see some scope for modest upside EUR risks to come to the surface on certain key crosses if Draghi continues to emphasize confidence in the medium-term outlook. Here, EURCAD stands out to us a a cross with potential to rally ahead of - and potentially in the wake of - next week's ECB meeting. With the Bank of Canada sticking to its cautious tone at its 18 April policy decision, we think the CAD may come under renewed selling pressure as markets begin to price out one of the two rate hikes indicated for this year.”

“We think EURCAD may have formed a base around the 1.55 mark. This level closely corresponds with the 61.8% Fibonacci retracement level of the trading range since mid-2017. Interestingly, the post-BoC squeeze has taken the cross up through trendline resistance that has emerged in recent weeks.”

“This, we think, suggests some further upside potential in the days ahead while downside risks are well-defined. Indeed a break below the 13 April trough at 1.5464 would negate the possibility that a near-term turn higher was underway, in our view. Looking higher, we think the first objective for bulls would arise in the 1.5750/60 zone while 1.5835 would be our next target for a sustained move higher ahead of the March peaks at 1.6153.”