EUR: Extremely low Euro area inflation to drive further currency weakness

Barclays notes:

Euro area flash July HICP inflation (Friday) should confirm extremely low inflation and support the ECB's continued commitment to its Public Sector Purchase Programme (PSPP). We forecast HICP and core inflation to have eased 0.1pp to +0.1% (consensus: 0.2%) and +0.7% (consensus: 0.8%), respectively. Indeed, we think that the ECB will continue its monthly asset purchases at the same pace until September 2016, and probably even longer as we believe the increase in inflation will likely be slower than the ECB currently projects. 

Moreover, we believe that the chance that additional measures will be announced by the end of this year is non-negligible and will depend on financial market developments, especially in conjunction with upcoming discussions about the third Greek bailout. As such, we continue to expect substantial EURUSD depreciation over the coming year as ECB monetary policy diverges materially from that of the Fed's and a large degree of economic slack weighs on euro area returns to capital.