EUR/USD has retreated from the highs, mostly on profit-taking from the big sell-off of the US dollar. It previously advanced thanks to Draghi’s unconvincing compaints about the exchange rate. What’s next? Here are three opinions:
Here is their view, courtesy of eFXnews:
EUR/USD: Markets Likely See A Scope For A Move Towards 1.25 – BTMU
BTMU FX Strategy Research notes that ECB’s changes to the inflation forecasts at its September meeting and the fact that President Draghi confirmed QE tapering plans were being compiled and would be divulged in October highlighted the extent of EUR appreciation needed to alter the path of monetary policy.
“We suspect the market may see scope for EUR/USD moving to 1.2500 before prospect of QE tapering plans being altered.
Increased speculation of the ECB being forced to alter policy normalisation plans will likely become a much greater influence on slowing the speed of EUR/USD gains above the 1.2000 level but will perhaps only become a powerful influence at levels over 1.2500 when another inflation downgrade by the ECB would be hard to avoid,†BTMU argues.
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EUR/USD: A Soft Cap Ahead Of ECB October Meeting; Dips To Remain Shallow & S/T – Danske
Danske Bank Research comments on EUR/USD reaction to today’s ECB September policy statement.
“The FX market bought the pair on ECB’s more positive assessment of economic growth this year and the signals that an announcement on monetary policy awaits in October. However, at the press conference Draghi made an effort to cap a further rise in EUR/USD by stressing the negative impact on the medium-term outlook for inflation from the stronger euro.
Hence, while the price action today underscores our view that underlying euro momentum remains strong, the market will keep in mind that the ECB is unlikely to tolerate a further strong euro appreciation in the short term, which should put a soft cap on the pair ahead of the October meeting.
We maintain our view that any dip should be shallow and short-lived,†Danske argues.
EUR/USD: How Much Higher & Balance Of Risks Into ECB Oct Meeting? – Credit Agricole
Credit Agricole CIB FX Strategy Research notes that FX investors looked well past Draghi’s jawboning of EUR as the question for most of them now is how much higher can EUR go before the next real hurdle for the bulls – the next ECB meeting on October 27.
In that regard, CACIB has produced an analytical framework suggesting a long-term fair value for EUR/USD between 1.25-1.27,depending on the model assumptions.
“Another fair value gauge, which captures the impact of currency moves on international competitiveness is the so called purchasing parity. According to that measure, EUR/USD could break above 1.30 before fuelling serious concerns about the erosion of the Eurozone’s international competitiveness,†CACIB argues.
“In all, the FX price action in the wake of the September ECB meeting may suggest that the risks for EUR/USD may still be on the upside going into October,†CACIB concludes.
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