BNP Paribas Research discusses EUR/USD outlook into the ECB policy meeting on Thursday.

The European Central Bank (ECB) will hold its first policy meeting of 2018 on Thursday 25 January. Since the release of the December meeting minutes, the pricing in of ECB tightening has adjusted significantly. The market is now pricing in a 65% probability of a 20bp hike in the ECB deposit rate by March 2019, which suggests the market is pricing in a similar probability of QE ending in September 2018.

We think it is probably too early to expect a change in ECB forward guidance at this week’s meeting; our economics team still expect the ECB’s language to be adjusted at the March 2018 meeting in line with its updated economic projections.

Hence, EUR bulls may view January’s meeting outcome as slightly more dovish, resulting in a moderate pullback in EURUSD towards 1.21," BNPP argues.

Source: BNP Paribas ResearchOriginal Article