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An expected economic rebound in the second quarter of the year, as well as mitigated political risks, underpin the view of economists at CIBC Capital Markets for euro strength. The EUR/USD pair is forecast at 1.24 by the second quarter of 2021.

Key quotes

“With eurozone vaccinations set to pick up into Q2, we can expect a supportive macro backdrop, as external manufacturing sentiment has remained supported by Asian demand. An expected rebound in Q2, following an easing in lockdown restrictions, will sustain growth and inflation expectations, and thereby help put to bed the chatter about moving to an even lower deposit rate, lifting the euro in the process.” 

“New Italian PM Mario Draghi comes into politics after spending eight years at the helm of the European Central Bank. The prospect of Draghi pushing forward with structural reforms to encourage a constructive use of EU rescue funds will benefit the zone, extending the compression in BTP-Bund spreads. Yield-based interest in Italian bonds remains EUR constructive.” 

“Draghi’s support for a common euro budget may encourage ongoing debate regarding fixing one of the long-term structural holes within the monetary union regime. Structural reforms and discussion of a reform of eurozone politics, under a Draghi/Macron alliance will help support medium run EUR valuations, at least against the other low yielders.” 

 

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