EUR: Falsely front-running ECB policy could delay any EZ inflation uptick - ING

Analysts at ING suggest that while there is the final round of the French elections this Sunday to contend with – rightly or wrongly, investors are viewing a Macron triumph as a formality at this stage given his healthy lead in the polls.

Key Quotes

“EUR/USD continues to take a relatively impassive approach to this event risk and remains on a path towards the critical 1.10 level – which could easily be breached in the event of a negative US data surprise today. But this is also a broad EUR rally that makes an economist quite uncomfortable; a tightening of financial conditions risks having a strong negative spillback effect at a time when the EZ inflation outlook looks (a) slightly optimistic at best and (b) in need of as much support as possible.”

“While FX markets seem not to care at this stage and hawkish expectations continue to prevail, one needs to be wary of the consequences of markets falsely front-running ECB policy: any EUR rally is one dovish signal away from being swiftly reversed.”