EUR/USD at 1.11 – can it continue higher?

The weakness of the US dollar helps EUR/USD reach higher and higher levels. Can it further extend the gains? Here are three opinions:

Here is their view, courtesy of eFXnews:

EUR/USD: Make Or Break Into Pivotal Resistance At 1.1097 – JP Morgan

JP Morgan FX Technical Strategy Research notes that EUR/USD  positive bias remains intact after the latest break above 1.0993.

Such a break, according to JPM, has underlined this positive momentum as the pair is inching closer towards  the next T-junction and pivotal resistance into 1.1097  which is also corresponds to the May 2016 low.

“The latter however still needs to be cleared to support a stronger recovery into 1.1300/15  (pivot/int. 76.4 %) and to eliminate the still looming setback risk,” JPM argues.

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EUR: Further Gains S/T But ECB Could Disappoint Bulls M/T – ANZ

ANZ FX Strategy Research argues that  while in the near-term the ongoing strengthening in the EUR could extend further, in the medium-term EUR gains could prove temporary on the ground that the ECB will likely be  very slow to change policy direction,  given an absence of underlying inflation and wage pressures.

“In the short run, against a backdrop of disappointment with US policy implementation, these could provide the euro with some further upside impetus..However, whilst we anticipate that forward guidance may be updated in the not too distant future, we do not expect the ECB to prematurely end its planned QE implementation of EUR60bn a month between Apri-December 2017,” ANZ argues.

“We therefore doubt that the ECB would welcome a sustained tightening in monetary conditions, even if led by the exchange rate, as that could pose risks to the improving economic climate. However, this does not preclude some temporary strengthening in the euro,” ANZ adds.

EUR/USD: The Signal From EU/US Equity Flows – Danske

Danske Bank FX Strategy Research notes that EUR/USD flows have seen pronounced swings in anticipation of monetary policy in recent years and while it is too early to call a clear shift in ECB policy away from easing,  EUR/USD flows may have gradually started to reverse suggesting further gains ahead.  

In particular, Danske argues that  the signal from the EU/US equity flows is EUR/USD positive given the history and outlook of such flows.

“History:  When the Fed started tapering at a time when the ECB finally invoked on easing mid 2013, the euro zone saw large inflows into equities from a broad, but notably most of these flows seem to have been hedged, i.e. largely EUR neutral. When the Fed started hiking late 2015 as the US economy picked up, the euro zone became a net buyer of US assets.

Outlook.  With forecast revisions on EUR/USD now more two sided and recently more consistently on the upside, there is a possibility that  continued outperformance of EU compared with US equities could result in EUR inflows that are not hedged to the same extent as previously, i.e. EUR/USD positive,” Danske notes.

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