Dovish ECB and hawkish Fed paint a bearish outlook for the EUR/USD. Is declining to 1.0770 the next stop?
Banks became increasingly bullish on EUR/USD in the near term
2019-11-11 • Updated
Forex analysts jointly expect the euro to extend its gains over the medium term.
NAB strategists expect the ECB policymakers to change their ultra-dovish rhetoric to a more hawkish one at the upcoming meeting in June. The bank’s officials might remove the word “or lower” from their current pledge “to keep rate unchanged or lower for an extended period of time”. They also project the ECB flagging a gradual reduction of its asset purchases in October-December and finally tapering it some day in 2018.
EUR/USD will likely be trading somewhere at 1.1000 in June 2017, around 1.1100 in September and near 1.13 by end December.
Bank of America Merrill Lynch
Bank’s FX Strategy Researchers upgraded their EUR forecasts this week. They note that the ECB will probably start focusing on QE taper in the longer term once its current program expires in December.
The debate is expected to start at the next meeting in June. The decision will probably be announced in September. The talk of QE tapering should support the single currency.
The bank’s strategists advise to buy any dips in EUR/JPY keeping in mind that the Bank of Japan is still committed to its yield targeting regime (until Japan’s inflation rate hits 2% target). Buying EUR/USD is not a really good idea as the USD is also expected to rise this year amid numerous Fed’s hikes and tax reforms. So, being long on EUR/JPY is a better choice.
ING Strategists suggest buying EUR/USD in the near term. They expect Eurozone preliminary GDP growth figures picking up to 0.5% + positive rhetoric from policymakers (concerning gradual taper of the QE program). In addition, ING strategists note that the EZ inflation expectations taken from the 5Y5Y inflation swap are starting to edge up.
In the course of this week, EUR/USD will be searching for any excuse to rally above 1.1000 towards 1.1050/1.1060 area.
Standard Chartered investment bank has also turned positive on the EUR as the ECB is up to scale back its stimulus any time soon which in turn might lead to rising of the Bund yields. This will result in the narrowing of yield differentials in favour of the euro. Also, the bank draws its attention to the diminishing political risks associated with the second round of the French presidential election. Centrist candidate Macron is still having a strong lead over Eurosceptic Le Pen.
Credit Suisse, Nomura, JP Morgan echo a similar trade seeking to benefit from the euro appreciation.
Last week, EURUSD broke below a significant support level, the gas price retested its October high, and the oil prices managed to correct lower on the bearish signs of more oil supplies coming into the market.
This article will analyze the possible scenarios for the EU, and what's more important, look at the charts. There is a lot to see, let's go!
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