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Forex pairs in this Article » EUR/USD
FXstreet.com (Barcelona) - In today's note to clients, Greg Gibbs, FX Strategist at RBS, underscores how EUR sellers were caught on the wrong foot by ECB member Nowotny's comments, saying he did not see a “realistic perspective” of lower policy or deposit rates and that policy makers “have to live with” a strengthening EUR (reported by MNI).

Key Quotes

"In more detail he said, “Of course we do not welcome the appreciation” and are aware of its “especially negative consequences on the weaker economies and might therefore increase the economic divergence. But I do not see any instruments we could use against it, and I also don’t see that the problem has reached a dimension requiting a response.”

These comments are typical of the message from the ECB and are clearly bullish for the EUR. It sees itself incapable of action to cap the EUR, and the problem is not big enough anyway. This is why EUR is taking on the appearance of JPY pre-Abenomics; an intransient central bank in the face of deflation pressure and a large current account surplus resulting in a strong currency. Without a sovereign crisis, against ongoing extreme policy easing in the US, EUR is likely to grind higher."

"As such, we view the weaker EUR/USD as corrective of its recent significant gains as the market is wary of a possible earlier than
expected Fed policy tightening. Short term momentum traders also appear to be long EUR, judging by the IMM futures position
report and thus may be getting squeezed out."
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