Goldman Sachs emphasizes the need for caution regarding near-term downside for EUR/USD. Despite weak momentum, the European Central Bank is not likely to shift to a more aggressive policy stance, which may help support the euro in the short term.
Key Points:
Limited ECB Guidance:
The ECB is expected to maintain its cautious approach and not move towards more explicit forward guidance at this week's meeting, despite the anticipated 25 basis point rate cut.High Bar for Depreciation:
A one-at-a-time cutting cycle means that policymakers may require convincing data to support each subsequent cut, raising the threshold for EUR depreciation. This dynamic contributes to the euro's relative resilience this year, even amid more downbeat economic data.Potential for Proactive Stance:
If the ECB were to adopt a more proactive stance and diverge from the Federal Reserve's policy, it could create powerful conditions for EUR/USD to weaken. However, such a shift seems unlikely in the immediate future.Trade Recommendations:
While Goldman Sachs sees downside risks for the euro and continues to recommend trading it on the funding side, they caution that simply moving faster is insufficient to guarantee significant EUR/USD depreciation.
Conclusion:
In summary, while there are underlying risks for the euro, the ECB's cautious approach and the structure of its rate-cutting cycle provide a buffer against immediate downside for EUR/USD. Investors should remain vigilant as future shifts in ECB policy could impact the euro's trajectory.
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