EUR/USD is trading under the 1.10 level but isn’t going down too fast. What’s next for the common currency?
The team at BTMU sees more EUR selling still to come and sets the next targets:
Here is their view, courtesy of eFXnews:
During July the euro weakened against the US dollar in terms of London closing rates from 1.1142 to 1.1046, notes Bank of Tokyo-Mitsubishi (BTMU).
“The euro weakened in July with the focus in the foreign exchange market shifting away from the uncertainty related to ‘Grexit’ and back to the monetary policy divergence between the euro-zone and the US. That should mean that the euro reverts to being the funding currency of choice,” BTMU clarifies.
“Indeed, the weakness in the second half of July suggests that is now taking place. However, we suspect there’s a lot more potential selling to come,” BTMU projects.
“While the euro is weaker on the month, the fall in commodity prices could actually be offering the euro some temporary support. The commodity price drop means that other currencies more tightly linked to commodities have performed worse and hence that is limiting the appetite for selling the euro versus these currencies that are weakening due to the commodity price sell-off,” BTMU argues.
“However, falling oil prices, if extended, will complicate the ECB’s achievement of its inflation target that could mean the ECB needs to extend QE while China weakness that keeps capital flowing out of China means reduced FX reserves that removes reverse recycling support for the euro as well,” BTMU adds.
“Despite the resolution to the crisis in Greece, at least for now, we maintain that the fundamentals point to renewed EUR weakness and a decline in EUR/USD toward parity,” BTMU projects.
BTMU targets EUR/USD at parity by year-end and at 0.96 by Q1’16-end.
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