ECB seen dovish, EUR/USD rangebound – Danske Bank

Analysts at Danske Bank assessed the upcoming ECB meeting and the prospects for the pair in the next months.

Key Quotes

“We expect the ECB’s likely removal of QE flexibility in March to support EUR/USD only marginally with knee-jerk reaction likely positive but dovish tone at the press conference to moderate this somewhat”.

“In an FX context, we think this move on QE is comparable to early June last year, when the ECB removed its rate flexibility (rates to remain at present or lower levels): back then, the euro did not react on impact, but started to move following the ‘normalisation’ talk in Sintra in late June”.

“For EUR what is important at present, in our view, is that the ECB keeps up the sense of a continued move towards policy ‘normalisation’. We think this will take EUR/USD towards 1.28 this year”.

“Near term, we still see the cross in the 1.21-1.26 range. Note that political risks (Italian election and SPD vote Sunday) could weigh ahead of the ECB’s decision”.