In their weekly notes to clients today, the FX strategy teams at Societe Generale and BNP Paribas advise investors to position for a possible EUR bounce heading into and after the upcoming ECB March meeting next week.
Here is how Sam Lynton-Brown from BNPP Global FX Strategy puts it:
"Heading into the European Central Bank (ECB) meeting on 10 March, we think risks are skewed towards a bounce in the EUR. We expect the ECB to deliver new aggressive easing measures: cutting the deposit rate by 20bp (combined with tiering), increasing the monthly run rate of asset purchases by EUR 10bn and extending the timeframe of the purchase programme by 6 months to September 2017.
However, market expectations appear too elevated, with our Interest Rate Strategy team arguing there is a greater risk for EUR front-end rates to increase after the announcement and recommending selling 3m and 6m Euribor contracts. Furthermore, our BNP Paribas STEER™ model, suggests the decline in the EUR has overshot its short-term fundamental drivers.
We believe the best way to position for a bounce in the EUR is via EURJPY have recommended a long position in the cross via a risk-reversal."
...And here is how Olivier Korber from SocGen Forex & Derivatives Strategy put its:
"The bar is high for the ECB to keep the euro correction on track. The main risk is too timid a rate cut, which would be unlikely to be balanced by bold unconventional steps (base effects are likely to lift inflation in H2, and looming Brexit risk suggests that the bank should keep some regulatory ammunition).
That would propel EUR/USD to the upper half of its 1.05-1.15 range.
We recommend a tactical 1m option trade of buying limited upside and selling the range’s bounds. The leverage exceeds 10x the premium at 1.1350."
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