The rally in EUR/USD came to a shuddering halt after the dovish market interpretation of the ECB rate decision. Still, economists at Société Générale note that the long-term points to the upside.
Further profit-taking cannot be ruled out
“Tactically, further profit-taking cannot be ruled out.”
“The ECB may try to correct the market’s dovish interpretation of the rate decision and statement last week. This could attract Euro buying but conviction is likely to remain at a low ebb until the CPI release in the US next week.”
“The longer-term trend for EUR/USD remains tilted to the upside thanks to the improved terms of trade, the boost in economic growth in China, narrowing of Fed/ECB policy spread and attractive valuation.”
“Main downside risks are associated with the new military offensive by Russia in Ukraine and escalation with the Western allies/disruption to energy supplies.”