While the outcome of the Greek elections was more or less priced in by markets, the heavy hand of the ECB is set to weigh.
The team at Bank of America Merrill Lynch lower the EUR/USD forecasts:
Here is their view, courtesy of eFXnews:
Following the aggressive ECB action, Bank of America Merrill Lynch is marking to market its EUR/USD projections, keeping a weakening path.
“Ahead of the most anticipated ECB meeting in recent years, we had argued that the risks for EUR/USD were balanced, but also pointed to downside risks to our projections,” BofA argues.
“We still see a gradual weakening of the Euro as Fed and ECB monetary policies diverge. After this week’s ECB policy announcements, we do not expect any aggressive further steps for the rest of the year. Our US economists expect the Fed to start hiking rates in September, with risks that it may be later. Such a divergence of monetary policies should continue weighing on EUR/USD in the long term, but it will have to be faster than markets currently expect to lead to a much further weakening of the Euro in the short-term. Moreover, short positioning could suggest some small upside Euro risks in the short term from profit taking,” BofA argues.
“We are now projecting EUR/USD at 1.10 by the end of 2015 and 1.05 by the end of 2016, a change from 1.20 and 1.15 respectively before ,” BofA projects.
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