EUR/USD to correct higher after ECB shifts to a symmetric inflation target of 2% - TDS

FXStreet notes that the ECB has released its long-awaited strategy review and now targets 2% inflation (symmetrically. The question is how much deviation they will tolerate. Suffice to say, the news has already been baked into the cake, and economists at TD Securities see little impact on the EUR at this time. For now, they think EUR/USD will most likely be USD-driven. 

“The leaks have pointed to the Governing Council adopting a symmetrical inflation target around 2%, and that was indeed what was delivered. The main issue of concern will be how much deviation policymakers will allow. The inclusion of house prices into the inflation measure ‘over time’ is cute, as it will add some upside to inflation but not enough to put it over the top.”

“Taken in isolation, a symmetrical inflation target is a touch more dovish than their current policy framework. This can’t be seen as any real surprise, however, and looks fully baked into the cake. As such, it may not be dovish enough. All else equal, that leaves us looking for some scope for EUR/USD to correct higher today, but it is far from a pound-the-table view.”

“With the daily RSI already in oversold territory and EUR/USD running into support around 1.1780, we would probably be looking for a modest rebound anyway as we remain biased to expect the broader ranges to hold overall.”

“We think additional support should arise around 1.1760 and then 1.1735/40 ahead of the end-March lows around the figure.”