EUR/USD: 3 Reasons Why Gains To Be Capped At 1.15

EUR/USD extends its rises and has already reached the next line of resistance at 1.1420. Draghi  is in the driver seat. What’s next?

Here is their view, courtesy of eFXnews:

Credit Suisse FX Strategy Research prefers to  keep its EUR/USD forecasts unchanged at 1.15 in Q3,  irrespective of yesterday’s hawkish comments from ECB’s Draghi.

CS outlines 3 reasons behind this call:

1.  “Draghi’s comments were not as unequivocal as we describe above. He described inflation forces as “not yet durable and self-sustaining,” suggesting that policy support is still needed. This likely limits both the pace and scope of exceptional policy withdrawal and also limits the tolerance for persistent EUR strength

2.  European equities are relatively heavy, with Euro Stoxx 50 around 3.5% off its May highs and down on the day yesterday. The EUR rally would feel more durable if it were coincident with rising euro area asset prices.

3.  Long EUR is still a negative carry trade in the large majority of cases,” CS argues.

“We note that EURUSD has failed to close above 1.15 in any week since early January 2015,  and indeed has only traded above that level in two weeks since then.

As such, the bar is set high for establishing itself above our target level,  especially as not all indicators validate the idea that it should do so,” CS concludes.

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