The common currency lost a lot of ground to the greenback in recent months, in a gradual yet consistent grind lower. Can it extend its falls and hit even lower ground.
The team at SocGen discusses the potential downside and what does keep the euro bid:
Here is their view, courtesy of eFXnews:
EUR/USD is on its way to below 1.20 for the first time in a decade, projects SocGen.
“Transatlantic monetary policy divergence is making its presence felt, with negative ECB deposit rates particularly potent when it comes to driving money out of the euro. A weaker currency will also be the main impact of ECB sovereign QE in Q1,” SocGen adds.
Specifically, SocGen expect the EUR/USD to fall to 1.14 in 2015.
So why not to parity? Will it collapse after?
“…Arguably, the Rates/FX link has been re-established after a troubling break at the turn of 2013-2014. EUR/USD is even overshooting to the downside and that is how it should be now that the ECB plans a bolder expansion of its balance sheet,” SocGen adds.
Nevertheless SocGen still expects EUR/USD downside to be limited by three factors:
1- Large currency moves would make the Fed more cautious. That should be a selfcorrecting mechanism.
2- Positioning is already extreme, which should limit EUR downside.
3- The euro’s basic balance (current account, portfolio flows, FDI) has reached new record highs, at some €370bn over the past 12 months…Historically, that has been a strong driver of the euro . This no longer holds true but can’t be ignored entirely.
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