EUR/USD: Patience Needed; Better Levels To Sell In The Weeks Ahead - Credit Agricole

EUR/USD: Patience Needed; Better Levels To Sell In The Weeks Ahead - Credit Agricole

4 April 2016, 15:30
Vasilii Apostolidi
0
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When it comes to the EUR, more patience may be needed. With ECB Governing council member Makuch a majority of central bank members now more or less confirmed that cutting the deposit rate as a tool to stimulate the economy is largely exhausted.

According to ECB Governing Council member Makuch, further cuts would bring a weaker effect suggesting that this tool is almost exhausted. As negative interest rates are key in denting the capital flow situation, stability may actually lower the single currency’s negative correlation with risk sentiment. This is especially true as rising liquidity expectations on the back of the ECB’s stimulus measures may actually increase demand for EUR denominated risk assets from abroad. As a result of the above outlined conditions it cannot be excluded that the single currency will remain subject to upside risk. 

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Considering that a lower deposit rate was key in dampening the capital flow situation to the detriment of the EUR, it comes as no surprise that EUR selling interest has been falling. Even if rising Fed rate expectations may ultimately limited pairs such as EUR/USD on the upside, better levels to sell the pair may be reached in the weeks to come.

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