ECB concerned about a euro overshoot - ING

Petr Krpata, Research Analyst at ING suggests that they fully share the ECB’s concerns about the risk of a EUR overshoot as raised in the July meeting minutes.

Key Quotes

“In fact, we believe that EUR/$ started heavily overshooting after this meeting, with moves above the 1.15 level (which was seen before President Draghi’s press conference) being unjustified. All-in-all, the tone of the minutes suggests that the ECB will indeed be cautious about the way it will communicate any future policy moves, with the dovish form of QE tapering being the most likely option. This suggests that upside to long-dated bund yields should be relatively limited in the coming months (particularly if we have Italian elections in 1Q 2018), which in turn means limited upside risks to EUR/USD (unless we see a discrete $ weakness). This is in line with our view that EUR/$ is likely to move lower before moving higher. We are not pencilling in a significant breach of the 1.20 level until 2Q18 and after the Italian elections.”