EUR/USD is deteriorating quickly after a period of range trading. Is it just an extension of the range or is there something bigger?
The team at BNP Paribas points to the real yields and QE, and sets low targets:
Here is their view, courtesy of eFXnews:
Much of BNP Paribas’ analysis over the past year has been focused on modifying the standard relative nominal yield framework for FX to account for unconventional central bank easing.
“We continue to believe that focusing on real yields provides valuable additional information as it captures the effect of QE on inflation expectations. EURUSD is the case in point – while inflation expectations in both the US and eurozone have rebounded since January, the eurozone 2y inflation swap rate rose by 30bp more than its US counterpart,”BNPP argues.
“Given our nominal rates forecasts and the fact that there is still more scope for eurozone inflation expectations to rise relative to US expectations, we expect real rate differentials to move strongly against EURUSD,” BNPP projects.
In line with this view, BNPP targets EUR/USD at 1.0 by the end of the year, and 0.98 by the end of Q1 2016.
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