FXStreet (Barcelona) - Derek Halpenny, European Head of Currency Strategy at the Bank of Tokyo Mitsubishi UFJ, sees the single currency heading towards lower levels.
"The foreign exchange market is relatively quiet this morning with narrow trading ranges evident in most currency pairs. The S&P 500 closed above the 2,000 for the first time on record while 10-year US Treasury bond yields declined further."
"It seems pretty clear that until there is something to question the building belief of further ECB easing, the euro is set to gradually grind lower. There are no real obvious events to question that growing belief perhaps through until the ECB monetary policy meeting next week and hence the negative sentiment is set to continue."
"The data calendar is very quiet today but what has just come out is consistent with this growing belief of additional ECB monetary easing. The German import price data for July has just revealed the annual rate fell to -1.7% from -1.4% in June."
"Admittedly through the ECB should become less concerned over the deflationary impetus from import prices given the movement of the euro. Remember, the ECB believes that for every 10% change in the EUR TWI there is an equivalent 0.4-0.5ppt change in the annual inflation rate."
"The ECB Daily Nominal EER-20 index is currently down around 3.6% from its peak earlier this year – so the exchange rate is going in the right direction for alleviating the deflationary impetus through imported prices. Still, the TWI needs to move considerably more to have a meaningful impact."