UEUR - ECB Meeting Is Largely Priced In Euro Momentum Likely To Continue

• The euro has experienced a significant rally in the past 8 months in this weak USD environment, rising from a low of 1.0640 in mid-March to 1.20 this week.
• Central banks will certainly not let their exchange rate appreciate indefinitely, as a strong currency tends to weigh on inflation expectations.
• The ECB meeting on Thursday is largely priced in, therefore the EURUSD spot rate could continue to move higher in the short term.
• However, the upside gains remains limited, as policymakers will start to react to a strong euro; there could be a "hidden" cap at 1.25.
• In addition, the lack of economic activity amid the high reliance on tourism for some countries will certainly lead to higher political uncertainty in the medium term.

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