EUR Vulnerable Ahead of Possible ECB Surprise: What to Expect

EUR: Fragile before a potential ECB surprise

Aside from any potential revision in the PMIs (August’s final release today), the eurozone’s calendar is rather quiet on the data side. It will be, however, quite interesting to hear what ECB speakers will have to say about the latest inflation numbers in the last two days before the pre-meeting quiet period kicks in.  

We’ll hear from both sides of the spectrum today: the hawk Isabel Schnabel and the dove Ignazio Visco. Despite the resilience in headline inflation, markets focused on the consensus deceleration in August’s core inflation and have cut back expectations of a rate hike in September, currently priced in with an approximate 25% probability.

Our economics team is calling for one last hike next week, meaning we are expecting a EUR/USD rally to materialise thanks to an ECB hawkish surprise, but before then EUR/USD looks quite fragile. We might see the 1.0700 support being tested before the ECB meeting, should risk sentiment stay soft.

Francesco Pesole