Risks tilted to the upside for the EUR today?

By Giles Coghlan, Chief Currency Analyst at HYCM

ECB in focus

The ECB meet today prior to the meeting we have French and German services and manufacturing PMI's. Recently the EUR has been supported by a weaker USD and hopes for a Brexit deal between the UK and the EU which has led to EURUSD strength. The rate statement today should give some more direction for the EUR and risks are tilted to the upside as the bearish case for the Euro is firmly established. One scenario I am looking for is if we get a recovery in PMI data, and the ECB rate statement is more optimistic than the market is expecting then we should see some more sustained EUR/USD strength. So, for more EURUSD strength we would need:

1. Good /expected PMI's
2. A more upbeat rate statement
3. Continued movement towards a Brexit deal

For more EUR weakness we would need to see an acceleration in the bearish outlook from the ECB. At present expectations are for another ten bps in rate cuts by June 2020. Given the continued fall from the EU data this outlook may need to be revised so watch out for signs of more rate cuts at a greater pace. A bearish outlook for the EUR would be:

1. Poor PMI's
2. A downbeat rate statement
3. Continued Brexit uncertainty

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