While EUR/USD continues moving on Greek headlines, the team at Deutsche Bank looks at the bigger picture.
The next moves depend on monetary policy on both sides of the Atlantic. And this entails a big fall:
Here is their view, courtesy of eFXnews:
EUR/USD continues to grind higher albeit in narrower ranges as Greece continues to dominate the headlines, notes Deutsche Bank.
“The main focus was the June Fed meeting where early year expectations of a hike this month now feel a long time ago. There was speculation that Yellen shifted her 2015 dot lower, although as our US economist noted it is hard to tell,” DB adds.
“In any case, the median FOMC forecast for 2015 remained at 0.625%, while forecasts for 2016 and 2017 fell 25 basis points…Alan Ruskin looked into what current forward rates imply for EUR/USD based on the past relationship of the cross to rate spreads. A Fed funds rate of 275bp versus a zero EUR overnight rate would imply a further 20 big figure move lower in the cross. Clearly, however, the burden of EUR/USD weakness now lies on the Fed,” DB argues.
What’s next? “With the Fed still in data-dependent mode, more convincing evidence of a Q2 growth pick-up is needed. This week’s May durable goods orders and PCE are the next big data,” DB adds.
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