ECB’s tone today will be critical for EUR - Westpac

Tim Riddell, Research Analyst at Westpac, suggests that EZ 4Q GDP (30th) should reflect the string of recent strong data and so the ECB’s tone today will be critical given shifts in market bias towards earlier guidance changes.

Key Quotes

“In Dec. ECB made clear references to EUR strength as a risk to ECB staff forecasts (based on EUR/USD at 1.18). However, EU data show no impact from EUR strength and continue to punch higher. Therefore, the weakening of USD has allowed EUR/USD to test late 2014 highs.”

“The SPD vote to support Merkel’s grand coalition removed a possible roadblock, even if an operating government could still take weeks or form. Political focus will shift towards Italy. Most parties are now more pro-EUR and a (market friendly) centre-right coalition seems the likely outcome.”

“Unless Draghi gives a clear warning over EUR strength or is decidedly cautious, the positive data flow should maintain EUR uptrend against a weak USD.”