EUR/USD: We look for a stronger medium-run EUR profile – CIBC

Analysts at CIBC, forecast EUR/USD at 1.15 for Q2 2019 and at 1.18 in Q4. They have delayed the first ECB rate hike and see moderate positive Euro dynamics in the near-term.

Key Quotes:  

“The March ECB meeting was not quite revolutionary. However, the combination of measures – including an extension in calendar-based rate guidance, additional bank liquidity, and an aggressive downgrade in the near term growth outlook, have prompted us to push back the timing of the first rate move to Q1 2020. This combination effectively moderates near-term EUR dynamics.”

“While the ECB aggressively marked down their 2019 GDP estimate – largely due to external factors – the downgrade for next year’s estimate was a modest 0.1%. Therefore, growth is set to remain above trend – underlining that the output gap will continue to close, and we’re maintaining our bias for monetary policy tightening ahead of consensus expectations.”

“While Europe remains impacted by external trade concerns, assuming an easing in China-US trade tensions into H2 and a resulting turn in external data, we look for a stronger medium-run EUR profile. The introduction of fresh TLTRO’s helps to alleviate a potential cliff in funding costs for Eurozone banks, while increased fiscal stimulus will also be supportive for the euro. Note that the avoidance of a liquidity squeeze is encouraging – and not to be confused with additional QE. Avoiding a spike in funding costs, or a necessary paring in bank balance sheets, should prove constructive for the EUR over the medium-run.”