Eurozone: Signs of resilience in economic activity needed to underpin EUR - ING

Viraj Patel, Research Analyst at ING, suggests that they think there may be a higher premium for monetary policy normalisation stories to drive currencies in the near-term and specially for the EUR.

Key Quotes

“This is true for any ECB-driven move higher in the euro – which now requires even stronger tightening signals from incoming EZ macro data to convince the more dovish ECB board members to let their foot of the monetary easing pedal. In this regard, yesterday’s miss in core inflation (which printed at 1.0% YoY) was unhelpful – and subsequently the focus today shifts to the final March PMI readings and retail sales data. Signs of resilience in EZ economic activity will be required to underpin the EUR’s current pro-cyclical rally, with further negative data surprises weighing on the currency. Should this occur, it may be more visible on the crosses (eg, a lower EUR/GBP) – rather than EUR/USD, which continues to be propped up by a politically weak $.”