EUR/USD suffered the yield differentials and dropped below 1.13. What’s next? Can it push even lower?
Here is their view, courtesy of eFXdata:
ANZ Research discusses the possible impact of a new round of TLTRO by the ECB on the EUR rate and thinks that it would likely be EUR negative. ANZ targets EUR/USD around 1.08 by mid-year.
“The end of quantitative easing in Europe has coincided with a sharp slowdown in activity, and forward indicators signal weaker activity ahead. Maintaining maximum policy stimulus is essential if the European Central Bank is to shore up confidence in achieving its inflation mandate over the forecast horizon. The reintroduction of QE or further interest rate cuts both have high hurdles, but we think the introduction of new targeted longer-term refinancing operations (TLTRO) can play an important policy role in the months to come,” ANZ argues.
“Alongside a shift in forward guidance on rates, a TLTRO could help signal that monetary policy will remain extremely accommodative while also supporting stable bank funding. The latter is a precondition for avoiding the return of fragmentation and will underpin the credit growth cycle. While we should not mistake TLTRO for QE, we think the policy signal it sends will be negative for the euro. We continue to expect the EUR to trade at 1.08 by mid-2019,” ANZ adds.
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