FXStreet (Edinburgh) – Jane Foley, Senior Currency Strategist at Rabobank, argued the single currency could slip towards 1.06 vs. the dollar in a 6-month view.
Key Quotes
“While we expect EUR/USD to move lower on a 6 mth view, we don’t expect that the pace to come close to matching the bullish USD momentum that was evident at the start of this year”.
“While the EUR should still be dragged lower until the heavy weight of the ECB’s asset purchase programme, the higher levels of Bund yields relative to the start of the year should counter some of portfolio outflow from the EUR in the coming months”.
“That said, Bunds yields are likely being supported currently by safe haven demand caused by Greek debt uncertainties. This safe haven flow has probably been underpinned with the rise in political uncertainty in CEE markets such as Poland and Turkey which will have added to general levels of risk aversion”.
“We see this has the prime explanation as to the resilient tone of EUR/USD in recent weeks”.
“On the assumption that Greek does find an eleventh hour deal with its creditors that allows it to avoid default for now, it is likely that flows will shift back out of the EUR into riskier assets”.
“However, the market may cling on to a higher level of risk aversion relative to the start of the year meaning that investors may be less willing to short the EUR as aggressively as in Q1”.
“This factor coupled with the Fed’s lower trajectory for 2016 rate rises should slow the downside potential for EUR/USD this year. Our 6 mth forecast for EUR/USD stands at 1.06, though we see some upside risks to this view”.
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