Next week, the European Central Bank (ECB) will have its policy meeting. Analysts at Danske Bank do not expect any new measures to be announced. They expect the central bank to send its usual dovish signals, which could raise further market expectations for a December decision to increase/extend PEPP due to its open interpretation of the language. They see the EUR/USD at 1.17 in a month and at 1.20 in three months.
“Over the past 2-3 months, we have seen EUR/USD and European equities go broadly sideways while short-term market interest rates have moved lower. This generally reflects a weakening pace of recovery in the euro area, in part due to the resurging coronavirus. In addition, it reflects a mild weakening of the political situation in Europe.”
“We expect the ECB to strike a dovish tone, which at the currently elevated levels of EUR/USD could be a small negative factor. Nonetheless, we note the global picture is very influential for the trend in EUR/USD spot, particularly the outcome of Brexit negotiations, the US election and COVID-19. We target 1.17 on 1M and 1.20 on 3M, which assumes some very positive global developments on these latter factors.”
Credit: FX Street