As we outline in our recent focus, from a pure currency perspective, the latest ECB policy surprise is likely to drive an even greater ‘yield-wedge’ between EUR, USD and other core currencies in the coming month.
As such ECB Draghi’s speech in Milan could well be the main EUR event this week. Having already fallen nearly 5% from its July peak, any further refinement of his post-announcement comments next week could again see EUR under pressure. Indeed many investors are likely to be motivated to accelerate their rebalancing plans on seemingly greater ECB determination to lift Eurozone competitiveness.
Likely to reflected in improving Q4 sentiment measures, European manufacturers will undoubtedly welcome this boost to the ‘Terms of Trade’ (i.e. relative export versus import price ratios) given increasing Asian competition all along the euro area export-value chain.
While having missed last week’s opportunity to re-instigate shorts, we expect weakness to resume swiftly this week and look to sell at current levels.
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