EUR: Broadly Stable: Staying Long Vs These 2 Currencies
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The EUR has been supported, mainly on the back of stable central bank rate expectations. One must note that Eurozone inflation expectations as measured by 5Y forward breakeven rates have been stabilising, irrespective of the appreciating single currency.
This in turn suggests that price expectations have indeed become less driven by markets. As such the ECB is in no position to increase its focus on the currency again, at least for now. As such it makes sense that ECB Governing Council member Nowotny reiterated this week that the currency is not a policy target.
In an environment of stable monetary policy expectations the EUR is likely to remain broadly stable. Given scope of diverging monetary policy expectations we anticipate upside versus both the CHF and JPY. We remain long both crosses.*
In terms of data this week final April CPI and trade data will be watched.
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