EUR/USD: Open for a correction as ECB stays dovish – ING

EUR/USD closed in the positive territory on Wednesday. Today, Economists at ING expect the EUR to weaken as the European Central Bank (ECB) may announce a new flexible purchase programme.

ECB meeting to mark a further widening in monetary policy outlook

“We expect a dovish message by the ECB today. An extension of the Pandemic Emergency Purchase Programme after March appears unlikely following recent comments bn President Christine Lagarde, and the question is whether the governing council will opt to smooth the transition to the much smaller Asset Purchase Programme (EUR20 B per month) by increasing the size of the APP itself or by introducing a third programme. We see the latter as more likely, given it would allow greater flexibility than the APP, and expect it to amount to around EUR300 B.”

“We expect the EUR reaction to be negative. This week’s meeting should further highlight the Fed-ECB divergence on inflation views (non-transitory vs transitory) and policy direction: we expect all this to keep EUR/USD capped in the medium-term.” 

“For today, we expect the mix of the market reversing yesterday’s losses in the dollar and idiosyncratic EUR weakness to put pressure on the 1.1200 support.”