The euro has shown resilience and the Canadian dollar has also provided surprises. This triggers an update of forecasts by Deutsche Bank.
Here is their view, courtesy of eFXnews:
We are revising our EURUSD forecast path moderately higher in recognition of two significant developments since the start of the year.
First, the increasingly apparent limitations of central bank policy and the resulting ECB shift away from negative rates as a form of easing.
Second, rising Fed sensitivity to global developments, which has shifted the distribution of rate hikes away from the modal four anticipated at the start of the year to two.
That being said, we remain EUR/USD bears expecting the next move outside of the well-defined 1.05-1.15 range to be down. Fed pricing has overshot with the risks skewed towards at least one rate hike this year versus market pricing of one hike every twelve months. The ECB also has materially greater scope to ease policy as evidenced by the significant risk premium embedded in European risk assets as well as the steepness of the GDP-weighted yield curve. In the meantime the flow picture remains unabatedly negative, with continued large outflows from the euro-area as the process of persistent portfolio re-allocation into foreign assets (the Euroglut phenomenon) continues.
We are revising our USD/CAD forecast path lower following a moderate rally in oil prices and a slower pace of Fed tightening than originally expected. USDCAD should peak around 1.35 this year and slightly above 1.40 next year on expectations that the Fed will resume its tightening cycle, and if they don’t it will be because of a less than CAD friendly risk negative environment.
Trade is likely to remain a significant drag even with decent US growth before improving next year. By then, the fiscal impulse is likely to have gained a little traction limiting the CAD fall-out to below the CAD’s 2016 January peak at 1.4690.
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