Post-ECB euro strength should only be temporary

UBS daily forex Europe Post-ECB euro strength should only be temporary Constantin Bolz analyst Dear reader,  The ECB left its policy rate unchanged at the June meeting. However, Draghi made clear that the ECB stands ready to act, if the economic recovery appears in danger of failing. This risk could come from weakening economy, e.g. PMIs, but it could also come from a higher EURUSD than the ECB believes is justified. The recent fall in inflation gives the ECB the room to argue from a price stability perspective, without pointing directly at a strong currency. He outlined again that negative interest rates are now technically feasible. With this, we believe that the upside for EURUSD is capped for the time being. For the coming months, we still see the US economy on a stronger footing than the eurozone economy and believe EURUSD below 1.30 is more justified than above. As we expect in our base case a gradual economic recovery of the eurozone into positive growth territory in the second half of the year, longer term EURUSD should trade above 1.30 again.