The downward pressure on the EUR remains intact especially as the break of some key technical support areas has provoked further selling, notes Australia and New Zealand Banking Group (ANZ).
ANZ outlines the following arguments in favour of a weak(er) EUR:
- A negative ECB deposit rate and negative term rates in core economies.
- QE and planned balance sheet expansion.
- Portfolio re-allocation as a consequence of ECB policy.
- Forward guidance and existing policy preferences.
- Negative inflation.
-A significant output gap.
ANZ also outlines some arguments in favour of a strong(er) EUR:
- Recovering growth.
- A rising balance of payments surplus.
- The embracing of economic reform.
- Banking union, recapitalisations and an improving credit environment.
- Accelerating monetary aggregates.
"There are reasonable arguments on either side, but for now the negative arguments are stronger and are continuing to dominate," ANZ argues.
Where to from here?
"Our short term target for EUR/USD has now been achieved and a break below 1.10 would open the way for a move towards 1.05. There is nothing in the price action to suggest the established downtrend is over," ANZ projects.
How to play it?
"Remain short for now, despite the improving euro area growth environment," ANZ advises.
