Euro May Fall as Draghi Argues for Firmly Dovish ECB

Talking Points:

• British Pound corrects higher after last week’s selloff
• Comments from ECB’s Draghi headline quiet calendar
• Euro may fall as dovish rhetoric cools tightening bets

The British Pound outperformed in otherwise quiet Asian trade as prices retraced after political uncertainty jitters triggered a dramatic selloff on Friday. Market closures in China, the UK and the US made for lackluster activity amid thinned liquidity conditions elsewhere in the G10 FX space.

From here, remarks from ECB President Mario Draghi amount to the only bit of noteworthy scheduled event risk. The central bank chief is due to speak at the European Parliament, where he will almost certainly opine on the near-term outlook for monetary policy.

The markets’ ECB policy bets have firmed somewhat over the past month. This is not entirely surprising: the headline inflation rate has averaged 1.8 percent thus far in 2017, effectively meeting officials’ mandated target of putting price growth below but close to 2 percent.

A recovery in crude oil prices probably explains a lot of recent CPI gains however. Once their effect is rebased out of year-on-year calculations, inflation may again look weak. For their part, the markets seem to be unconvinced. Priced-in expectations put price growth below 1 percent in two years.

With that in mind, Mr Draghi will need to forcefully push back against tightening speculation lest the markets’ front-running of would-be stimulus withdrawal derail the ECB’s reflation effort. That may weigh on the Euro, pushing it broadly lower against the major currencies.

Retail traders expect Euro weakness. Find out here what that hints about where prices are going!

Asia Session

No data.

European Session

** All times listed in GMT. See the full DailyFX economic calendar here.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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