EUR/USD: How high can it go and will the ECB react?

EUR/USD is holding onto 1.20 despite attempts for a recovery from the US dollar. What’s next for the common currency? At some point, we could see the ECB expressing its discontent.

Here is their view, courtesy of eFXnews:

EUR/USD: ‘Embrace The Strong EUR’ In 2018 Ahead Of Next Major Catalyst – ING

ING FX Strategy Research discusses the EUR outlook in 2018 and maintains a strong bullish bias on EUR/USD targeting a move towards 1.25.

“Our message to investors in 2018 is to embrace the strong euro; the next major catalyst for a move higher will be when markets position for higher ECB deposit rats – and this story could see EUR/USD rallying to 1.25 by summer 2018.

Our estimates suggest that only a sharp rise in EUR/USD above 1.25 over a short period of time (say 1Q18) would test the ECB’s ‘pain threshold’. This scenario, however, would be unlikely in the absence of any disorderly Eurozone bond market moves or an externally driven downturn in the global risk environment,” ING argues.

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EUR/USD: Will EUR Test ECB’s Patience Again? – Credit Agricole

Credit Agricole CIB FX Strategy Research discusses the possible concern of the ECB Governing Council from the EUR’s recent rise.

“EUR could gain more ground before it becomes a cause for concern for the Governing Council. In that, we suspect that EUR/GBP may carry a greater weight in driving the ECB reaction function than EUR/USD or EUR/JPY given the relative weight of the cross in the EUR TWI.

…The above being said, we remain of the view that any EUR gains above recent highs may prove difficult to sustain…All this should underpin the ECB’s commitment to policy accommodation despite the improvement in the Eurozone economy. In addition, political risks could return to haunt EUR yet again as well,” CACIB argues.

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