Analysts at CIBC, consider that the euro could receive an impulse from a shifting tone at the European Central Bank. They forecast EUR/USD at 1.17 in Q1 2019 and at 1.21 in Q3.
Key Quotes:
“Over recent weeks, investors have rebuilt net EUR shorts in response to heightened political uncertainty and lacklustre growth readings in Q3. But despite the Italian government pushing back against the Commission on budgetary issues, we do not expect tensions to evolve into something more material, thereby still allowing for euro appreciation ahead. The fading political fortunes of Chancellor Merkel have also weighed on euro sentiment. And while Merkel still intends to serve out her full term as Chancellor, history suggests it won’t be smooth sailing ahead (… ) All of these factors are priced into current dollar-euro levels.”
“With the slowdown in growth being short lived, and economic growth expected to remain above potential, the ECB’s policy assumptions could be revised soon given their more upbeat tone in communications.”
“While the euro is still set to strengthen, our trajectory has been revised lower given recent weakness, with EURUSD now set to reach 1.23 over the course of 2019.”
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