Based on what we have heard through various sources, we can expect little if any detail on the tapering plans today, which we all know is coming, and which is serving as the backdrop to buying the EUR dip. But how does president Draghi arrest the pace of EUR appreciation, which on a shorter term basis is close to fair value already. 1.2500 is a value level based on the longer term metrics, and this side of next year, we expect this to hold off this level, but it could be close.
The market clearly has not intention of retraining the push higher, trading the EUR from the long side, which naturally leads to signals for even higher levels, and it is this threat of a further momentum which is unnerving some - but not all - at the ECB. Note, Messrs Weidmann and Hanssen are not overly concerned with current levels, but a move up to 1.2500 would likely see their tone changed.
So what and how can Draghi curb this unrelenting appetite to buy EUR/USD? Focusing on the inflation forecasts, which are expected to be revised lower looks the more likely avenue, and being one for detailing the technical economic aspects, could elaborate on the impact this has on price stability - which is the primary mandate. Against this, the GDP forecasts should be revised higher to temper the longer term outlook, and on this basis, it is now a case of how far - if any - a EUR pullback will extend.
At present, 1.1700 looks out of reach unless the USD turns. We see the decision to delay policy adjustment as buying time (for Fed catch-up)to a larger degree, but the FOMC are doing the ECB no favours - and Kashkari in particular, but that one is for another day! This will be one of president Draghi's toughest press conferences, and his prepared speech will have caused him many headaches. Few can't see past a higher EUR, and this mindset will have to be materially altered. We will need to hear some explicit warnings over the FX overshoot, as in the minutes of the last meeting. Whether the president goes down this route is highly questionable as talk on exchange rates have been avoided - up until now (?).
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