Will The ECB Strike Back Next Week? What Would This Mean For The Dynamics Of EUR/USD Trading?


Bank of America Global Research flags a scope for verbal intervention from the ECB at its August policy meeting next week.

"The EURUSD appreciation has been too sharp, at a time when the Eurozone economy is in the midst of its worst recession and the furthest away from its inflation target since the formation of the single currency...In this context, the ECB meeting next week is a key market focus. We would expect similar concerns for the recent strength of the EUR, emphasizing that although the ECB does not target the currency, it is an important determinant of inflation in the Eurozone's open economy, which in turn justifies policy action when the EUR threatens the ECB's inflation target. The ECB has repeated similar messages when the EUR was strong in the past, under a different leadership," BofA notes. 



"Central bank verbal interventions on their currencies do work some times, but also have limits. We would expect investors to be more cautious when buying the EUR and be quicker to take profit after a move higher. However, a lot also depends on forces well beyond the control of the ECB, such as Fed policies, global risk sentiment and the US elections-again this has been a USD sell-off, rather than a EUR rally," BofA adds.