EUR/USD reached new highs for 2017 at 1.0905 but retreated quite swiftly as well. Here are two opinions about the next moves for the world’s most popular currency pair:
Here is their view, courtesy of eFXnews:
USD: Fade N-Term Strength; EUR/USD En-Route To 1.15 By Year-End – Nomura
Nomura FX Strategy Research expects EUR/USD to test 1.15 by year-end, arguing that lats week’s USD strength should prove to be unsustainable.
“We do not expect this strength to last, and maintain our core bearish USD outlook,” Nomura argues.
In that regard, Nomura notes that as the focus now moves to US tax reform, its economists expect Congress to pass a tax cut by end of Q3 that is only around one-third the size of the House’s proposal.
On the EUR front, Nomura’s analysis of slack measures in the eurozone suggests “inflation pressures are brewing, warranting a more hawkish ECB, higher yields and a stronger euro.”
EUR/USD is trading circa 1.0675 as of writing.
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EUR/USD: What’s Behind Its Resilience? What’s Next? – BofA Merrill
Bank of America Merrill Lynch FX Strategy Research outlines the following key factors behind EUR current resilience:
1- Leaks of ECB QE tappereing discussions have already started have supported the Euro.
2- The ongoing USD sell-off has also contributed to a stronger Euro.
3- BofAML proprietary flows show strong EUR buying in recent weeks, particularly by hedge funds noticing that long EUR position, particularly against GBP, is the most stretched compared with a year ago, according to BofAML’s estimates.
Looking ahead, BofAML argues that the market has run ahead of itself in the near-term on the ground of the following factors:
1- BofAML remains concerned about the French elections in the short term, as a Le Pen victory is a low probability but very high impact event.
2- BofAML argues that while ECB is on its way out from unconventional policies, this will be a slow exit.
3- BofAML notes that the USD can also do better by mid-year if the Fed hikes again in June and Trump succeeds in tax reform, particularly taking into account very low market expectations on the latter.
All in, BofAML still expect EUR/USD to weaken to 1.02 by mid-2017 but admits that risks to this projection are now to the upside, given the latest EUR strength. BofAML remains constructive on the Euro in the medium and long term.
EUR/USD is trading circa 1.0667 as of writing.
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