The euro enjoyed some hawkish comments by the ECB as well as optimism about the outcome of the French elections. What’s next?

Here is their view, courtesy of eFXnews:

Barclays Capital Research has upgraded its macro forecasts for the Euro area seeing growth to 1.7% for 2017 and 2018.

Despite better growth, Barclays forecasts the output gap to remain negative in 2018, which should prevent a more hawkish ECB, according to Barclays.

Nonetheless, Barclays argues that the ECB will proceed with the following exit strategy.

“First, in June, we expect a change to less dovish forward guidance that would open the door for depo rate hikes in 2018, even before QE ends.

Second, we expect a reduction in QE to €35-40bn in H1 18 and €15-20 in H2 18, as well as two 10bp hikes in the deposit rate, in Q2 18 and Q4 18.

In other words, we expect both QE and negative deposit rates to still be in place in H2 2018, even if at less accommodative levels than in 2017,” Barclays projects.