Draghi certainly delivered and didn’t disappoint: the big QE announcement sent EUR/USD way down to a weekly close around 1.12, the lowest in over 11 years.
Where can the pair find a bottom? The team at Nordea has a clear goal: 1.0000 – parity and here’s why:
Here is their view, courtesy of eFXnews:
The final delivery of an aggressive QE program from the ECB should keep the EUR on the back foot for the foreseeable future. The market’s confidence in the USD will be tested in coming months, but in the end we think the USD will remain the cleanest shirt in the laundry. We now call for parity.
The commitment shown by the ECB in launching its open-ended QE program strengthens the ECB’s guidance markedly, we believe. This should help prevent the EUR from undue appreciation even if the Euro Area shows signs of improving growth in coming months as we expect.
Over the next few months, we may also see a test of market’s confidence in the USD and the Fed owing to 1) delayed effects from USD strength on activity and inflation and 2) seasonal adjustment issues stemming from the deep downturn in 2008 and 2009. Beyond that, it makes sense for the EUR to continue to weaken below its long-term averages. The relative economic situation is far from average.
The same can be said for the monetary policy divergences we predict. To a big extent this is already priced-in in EUR markets. Our positive US story is far from fully priced-in however: at the end of the day we think the Fed will remain on its exit track, suggesting that the USD will remain the cleanest shirt in the laundry
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