EUR/USD at crossroads ahead of the ECB: neutral, bullish or bearish?

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EUR/USD has found some stability above the 1.22 handle. Tension is mounting ahead of the ECB. What’s next? Some see the euro stuck in neutral mode. Here are five opinions:

Here is their view, courtesy of eFXnews:

EUR/USD: Turning Tactically Neutral: Balance Of Risks Into Next Week’s ECB – BNPP

BNP Paribas Research discusses EUR/USD outlook, in light of exiting its short position* a week ago.

We have turned tactically neutral on EURUSD, targeting 1.22 in one month, but continue to expect a decline in the medium term, before a rebound to 1.30 by the end of 2019. 

“We think it is probably too early to expect a change in ECB forward guidance at next week’s meeting; our economics team still expect the ECB’s language to be adjusted at the March 2018 meeting in line with its updated economic projections.

Hence, EUR bulls may view January’s meeting outcome as slightly more dovish, resulting in a moderate pullback in EURUSD towards 1.21,” BNPP argues.

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EUR/USD: ‘A Head Scratching Moment’; What’s Next? – BofAML

Bank of America Merrill Lynch Research discusses EUR/USD outlook and notes that the pressure on the dollar has intensified in the opening weeks of the year despite a supportive macro backdrop. 

We continue to think the market is ignoring USD upside risks in the first half of the year, while simultaneously over-emphasizing the positive and well-priced ECB “normalization” story. US data had had a strong run, fiscal stimulus is expected to provide further tailwinds to the already-solid growth outlook this year and the Fed continues to tighten,” BofAML argues. 

USD: rebound approaching

We think Fed repricing effects could easily push EURUSD below 1.15 absent the flow effects of USD repatriation, particularly if the repricing is concentrated in 2019. Finally, we would point out that CFTC speculative positioning in EUR is nearing all-time highs. In short, EURUSD has had quite a run, but we think that it is due for a sizable correction,” BofAML adds. 

EUR/USD: Front-Loaded Range Trading Centered Around 1.22 Level – Barclays

Barclays Capital Research discusses EUR/USD outlook in light of revising its forecasts higher, as it now sees a flat profile for the pair around 1.22 through 2018.

“A strengthening euro area economy and ECB exit speculation are further front-loading EUR strength. While there are signs the EUR may have run ahead of fundamentals, we believe this accurately reflects reduced institutional risks and likely will sustain. However, the EUR no longer will benefit from the large short position and political discount it started with in 2017; this year it will be swimming against a rising carry disadvantage and face a political challenge in Italy.

We expect these factors to lead to frontloaded range trading in EURUSD centred on 1.22,” Barclays argues.

EUR/USD: Revising Our EUR Yield Forecasts; EUR/USD Dips To Remain Shallow & Short-Lived – Danske

Danske Research discusses the EUR outlook in light of revising higher its EUR yield and rates forecast.

“We have now pencilled in somewhat higher 10Y EUR and USD rates and yields (Germany) on a 12M horizon. We now expect the 10Y EUR swap rate to rise to 1.45% from earlier 1.20% on a 12M horizon,” Danske projects.

EUR/USD: sensitive to ECB and upside risks dominating. Any dip in EUR/USD near term set to prove shallow and shortlived; cross supported longer term by valuation and debt-flow reversal,” Danske argues.

EUR/USD: Going Against The Momentum N-Term; USD/JPY: Topside Heavy – BTMU

BTMU Research discusses EUR/USD, and USD/JPY outlook for the coming week, and takes a bearish bias on the 2 pairs in the near-term targeting moves towards 1.1900 in EUR/USD and 1110 in USD/JPY.

“We are always wary of going against the momentum over a very short time frame but we certainly believe there are grounds for EUR/USD correcting a little lower after a notable move higher since the turn of the year. We are fully on board with this move over the medium term but see scope for a correction,” BTMU argues.

” USDJPY topside seems quite heavy because of market expectations for BoJ to decrease JGB purchase….If market expectations of yield normalization grow further after the BoJ and ECB meetings, USDJPY will likely be capped by seasonal revenue repatriation and export flows. The US dollar strengthening is not expected at this stage,” BTMU adds.

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Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

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