EUR/USD: Depressed by dismal Eurozone’s economic data – Westpac

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Analysts at Westpac suggest that the EUR/USD is at the lower end of the USD1.12–1.16 range experienced since October 2018 due to the disappointing activity growth, with Q4 2018 Euro Area GDP coming in well below trend at 0.9% annualised, and the region’s composite PMI falling to a near six–year low in January.

Key Quotes

“At the national level, there is further cause for concern, with Italy now officially in recession, and political tension in France showing no sign of ending. It is not surprising then that, while remaining “confident” in achieving their inflation target in time, at their January meeting the ECB Governing Council acknowledged risks had “moved to the downside”. As a result, the March ECB meeting is likely to see their ‘on–hold through summer’ forward guidance extended to include autumn 2019 as well.”

“Come December 2019 however, with economic momentum having stabilised just above trend, and the unemployment rate continuing to edge down from 7.9% currently (having peaked above 12% in 2013), a new ECB President is expected to deliver the Euro Area’s first rate hike since mid–2011.”

“We therefore anticipate a rally in EUR/USD from its September 2019 low of 1.10 to 1.20 by end–2020. Further gains past this level – absent a negative shock for the US – would however require a rise in the ECB’s benchmark rates above zero, a decision we do not believe will prove appropriate until at least 2021.”

 

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