EUR & ECB Cribsheet

What was supposed to be a non-event ECB July meeting has turned into a key focus point of the week following the release of the ECB's strategic review.

With the ECB shifting the inflation target from ‘below, but close to 2%’ to ‘2%’ with a commitment to symmetry, the new strategy can be interpreted as either a formalisation of what it has been doing over the last few years anyway or a step towards more dovishness, as 2% implies a more resolute effort (see ECB Preview for more details).

This means the distribution of probabilities is skewed to lower EUR/USD. No change in the ECB bias is unlikely to be enough to send the euro higher as the ECB will remain cautious, and the Fed is much closer to starting the monetary policy normalisation process (both on the QE side and the interest rate side). At the same time, any ECB shift towards the dovish interpretation of the strategic review would underscore the recent downward EUR/USD trend.