Over the past three weeks bears in the euro suffered a series of strokes. Mario Draghi expressed doubts that rates will be lowered further, data on inflation in the Eurozone was better than expected and the Fed seems to occupy an increasingly cautious position on tightening monetary policy. Against this background, the strong report on the labor market in the US, published on Friday, failed to substantively support the USD.
Despite the unpromising at first sight picture, forex strategists of Goldman Sachs still provide parity in EUR/USD. The bank expect US regulators to raise interest rates in June, giving signal for such intentions after their meeting in April. Until then, the pair will likely remain locked in this range.
Besides monetary policies, however, there are other factors that may outweigh EUR/USD, provoking a sharp decline, but for now investors seem to ignore the dangers, warn from Goldman Sachs.
First, the markets for several months following topic on the possible withdrawal of Britain from the European Union. Political uncertainty undermine pounds, but if the electorate vote in favor of Brexit, this would be a negative factor for the euro as it is likely to appear a sell-off of European assets.
On the other hand, if the UK remains in the EU, the attention will focus on likely raise of rates in the country. In similar developments, from Goldman Sachs expect growth of sterling by about 15% in the subsequent 12 months.
Second, investors seem to have forgotten an old problem on the continent - Greece. The latest news hint of growing tension between the International Monetary Fund, Berlin and Athens. Approaching July 20, the date on which the Balkan country must return ECB 2.2 bln euro. IMF continues with calls for writing off part of the debts. Such a move, however, is politically unacceptable to Germany and other European countries. Greek saga is not new to the market, but the return of the subject in the foreground may impair the attractiveness of European assets in the second half, warn Goldman Sachs.
Forex strategists at Bank of America noted that the recent growth of the euro is a sign that the markets no longer pay particular attention to economic data or actions taken from central banks. For investors more important question is what will make regulators in the future?
Against this background, Bank of America predict a decline of EUR/USD below 1.1000 in June and parity at the end of the year. Strategists added that the danger for Britain to withdraw from the European Union threatens not only the pound but also the single currency. Short positions in EUR/USD look more attractive option for hedging risk than sales of GBP/USD.
Over the past three weeks bears in the euro suffered a series of strokes. Mario Draghi expressed doubts that rates will be lowered further, data on inflation in the Eurozone was better than expected and the Fed seems to occupy an increasingly cautious position on tightening monetary policy. Against this background, the strong report on the labor market in the US, published on Friday, failed to substantively support the USD.
Besides monetary policies, however, there are other factors that may outweigh EUR/USD, provoking a sharp decline, but for now investors seem to ignore the dangers, warn from Goldman Sachs.
Second, investors seem to have forgotten an old problem on the continent - Greece. The latest news hint of growing tension between the International Monetary Fund, Berlin and Athens. Approaching July 20, the date on which the Balkan country must return ECB 2.2 bln euro. IMF continues with calls for writing off part of the debts. Such a move, however, is politically unacceptable to Germany and other European countries. Greek saga is not new to the market, but the return of the subject in the foreground may impair the attractiveness of European assets in the second half, warn Goldman Sachs.
EUR/USD pair demonstrated confident growth four days in a row, as quotations formed a maximum near 1.1410.
The bank noted that growth was prompted by the revised expectations of investors about the pace of tightening the monetary policy of the Federal Reserve. The direction of future action is not questioned, while European Central Bank continues with stimulus measures and negative interest rates. Against this background, pressure on EUR/USD will probably preserve, although it will not be so strong given that the effectiveness of the instruments of the ECB weakened, while the increase in rates in the US will be very carefully.
First, a soft monetary policy in Europe, Japan and China will have less influence on markets than the careful approach of the Federal Reserve in raising of the interest.
Federal Reserve Chairman Janet Yellen defended the decision of the institution to be cautious in tightening monetary policy, citing global risks.
Forex strategists at Morgan Stanley advised investors this week to consider purchases of dollars against the yen.
"We recommend long positions in USD/JPY with target 117.00 and stop to limit the losses of 110.50. We expect strong economic data from the US, if our forecasts prove accurate, we will witness an increase in the yield of US bonds, which would stimulate the flow of capital." - comment the analysts.