Extremely low Euro inflation to drive further EUR weakness

Euro area flash July HICP inflation should confirm extremely low inflation and support the ECB's continued commitment to its Public Sector Purchase Programme (PSPP).  

"Indeed, the ECB will continue its monthly asset purchases at the same pace until September 2016, and probably even longer as the increase in inflation will likely be slower than the ECB currently projects. HICP and core inflation are expected to have eased 0.1pp to +0.1% and +0.7%, respectively. ", says Barclays. 

Moreover, 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, substantial EUR/USD depreciation is expected 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", added Barclays.