Last week’s European fiscal announcements should lay the groundwork for stronger growth, higher inflation, and last week’s ECB decision likely being the penultimate cut. Following recent fiscal announcements, our new ECB view now envisages just one more 25bp cut in June to a 2.25% terminal depo rate. A combination of support from the CDU/CSU/SPD (the incoming government) and the Greens means the plans should pass a vote on Tuesday in the existing Bundestag, with a two-thirds majority needed to make changes to the constitution.Hence both because of fiscal expansion as well as reduction in no of cuts, EURO ideally is headed towards 1.15 levels in medium term. There might be some short term drops due to tariff related news from US on European exports. But these drops might be utilised to buy EURO. Markets are still pricing in 48 bps of cut (below) which we believe might get limited to maximum 25 bps only for REMCY25. Technically, 1.0725 the 200 DMA might be the best place to buy EURO but we might never get these levels again. Hence as per risk appetite one should distribute longs in EURO from 1.0880 to 1.0720 levels for a target of 1.1480 levels in 3-6 month time horizon.SL at 1.0480. CMP 1.0880
