Societe Generale Research maintains a neutral bias in the near-term on the EUR/USD outlook , but likes tactical longs if the 1.12 levels holds.
"The ECB delivered a dovish message, with lower growth and inflation forecasts, a promise of a TLTRO3, and a further delay to the planned start of rate normalisation... For now US equities are showing toppish signs, and European financials are selling off in the aftermath of the ECB dovish package, as low rates are anchored for longer.
Forward guidance has been prolonged to December 2019, and the mention of discussions about extending it to March 2020 makes the statement sound even more dovish. On the credit side, a TLTRO3 will start in September, providing further liquidity, which should contain euro volatility," SocGen notes.
"EUR/USD should therefore remain prisoner of its 1.12-1.16 range but is currently trading in the lower bound. The volatility market remains however the least bearish it has been since June, and tactical longs appeal if the 1.12 support holds, as the
market could unwind some of its accumulated shorts," SocGen adds.
