FXstrategists at ING note that last week’s comments by the ECB's president Christine Lagarde and the recently published strategy review raised the stakes for today’s ECB policy meeting.
"... we think the distribution of probabilities for EUR/USD are skewed to the downside today. The main reason is that we see a non-negligible risk that the clarifications following the strategy review will lead markets to think that the Bank will increase purchases under the APP while unwinding the PEPP, which ultimately suggests that the pace of tapering for 2022 may well be smaller than previously expected. In addition, we think that any clarification about the new symmetrical inflation targeting will underscore how this will imply a more dovish stance."
"Despite President Lagarde announcing last week how there will be a change in the ECB guidance today, our economists do not think this will be in the sphere of rates forward guidance, which should remain anchored to the lower-bound, but instead on the mix between PEPP and APP, which, as mentioned, could imply a lower net reduction of purchases in 2022. This should underpin the notion that the ECB is not following the Fed in its hawkish trend, and encourage markets to stay broadly bearish the EUR/USD for today when we could see a decisive move into the lower half of the 1.1700-1.1800 area."
"Still, we expect the ECB-Fed policy divergence to fully emerge in 2022 when we expect EUR/USD to give up the gains we still forecast to see in 2H21."
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