Euro Drop to $1.20 Seen by Nomura on No Crisis: Chart of the Day - page 2
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I am curious if they took into account the FED counter-measures in the currency war too?
5 EUR/USD Downside Drivers & Targets – Nomura
The euro remains pressured to the downside and it may not be all over.
The team at Nomura present 5 downside drivers for EUR/USD and describe the lower targets:
Here is their view :
It took fairly severe risk aversion to see a squeeze in EURUSD up to above 1.25 earlier this week; and now that markets are relaxing (and the Fed helping) we are quickly back to the lows, notes Nomura
“The correlation between risk assets and the Euro is linked to the structure of capital flows. When risk appetite is there, there is steady capital outflows from the Eurozone. When there is risk aversion, there can be temporary repatriation, and the Euro benefits. The key to the Euro outlook in 2015 is the degree to which Eurozone investors will push capital abroad,” Nomura argues.
EUR downside: drivers.
In particular, Nomura thinks that the bearish EUR trend has potential to accelerate into 2015, for five reasons.
EUR downside: targets.
“We think 1.20 will be reached by January, and we can see 1.15 by Q2 2015…The levels, for shorts, may be worse in early January when most investors will be re-engagin,” Nomura projects
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I wonder how will China-Russia swap deal affect Euro and USD
It will be interesting year the next year
4 reasons why EUR downside could accelerate because of Greece in early January – Nomu
Greece is back to the headlines after PM Samaras’ presidential bid failed and the country is heading to parliamentary elections.
This has already weighed on the euro, but is there more? The team at Nomura provides 4 reasons why the euro’s downfall could accelerate in early January:
Here is their view :
With the calling of early elections in Greece, the key risk is a SYRIZA win on January 25, and a subsequent shift towards confrontational policies towards the EU/IMF/ECB, notes Nomura.
To get more insights on that, Nomura’s Greece specialists, highlight the key issues in a recent note to clients.
1- SYRIZA is in the lead in the opinion polls. But the lead is narrowing. Hence it will be a close call.
2- Financing problems will come to the fore by March. But more T-bill issuance may cover funding needs to about June.
3- The current bailout program (ESFS funding) ends on Feb 28. Access to ECB liquidity will be constrained thereafter.
4- No single party is likely to obtain a majority on Jan 25. Hence a complex coalition outcome is likely, and formation of a government could take several weeks.
“Hence, political risk in Greece is again creating global headlines. But as opposed to 2010-2012, the spill-over effects to the rest of the Eurozone seem limited. While Greek bond yields have moved from close to 6% in early October to 9.3% today, Spanish bond yields continue to trade to new lows (10Y at 1.59% today),” Nomura argues.
Impact on EUR/USD:
“The EURUSD down-trade has gotten more momentum since risk assets calmed (since mid-December). It would be no major surprise if momentum to the downside further accelerates in early January, when investors put on fresh risk in the new year,” Nomura projects.
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Euro Forecasters See Pain After Worst Year Since 2005
Midway through European Central Bank President Mario Draghi’s May press conference in Brussels, the euro rose to its strongest level during his tenure. Then he said the ECB was ready to introduce more stimulus measures, sending it into a slide that strategists say will extend into 2015.
Europe’s common currency, which appreciated to $1.3993 that May day, ended last year down 12 percent against the dollar, its biggest loss since 2005. Strategists, who were too timid with their call for a decline in 2014 to $1.28, now see a slump to $1.18 by the end of this year. The euro set a four-year low of $1.2004 today.
A weaker euro is key for Draghi as he tries to spur the region’s struggling economy and ward off deflation. He started this year by telling German newspaper Handelsblatt that the risk of deflation in the region cannot be excluded, bolstering speculation policy makers will soon start actions such as buying bonds that tend to weigh on a currency.
“The euro-bearish consensus was struggling hard for the first half of the year, but it has come good as the ECB has driven rates down,” Kit Juckes, a global strategist at Societe General SA in London, said in a Dec. 30 phone interview. “The best thing the ECB can try to engineer is still a weaker euro.”
Juckes forecasts the euro will weaken to $1.14 by year-end, a level last seen in 2003. It was at $1.2007 as of 12:54 p.m. New York time.
Below Target
With inflation languishing below the ECB’s goal of just under 2 percent and the market’s outlook for consumer prices crumbling as crude oil declines, more than 90 percent of respondents in a monthly Bloomberg survey in December predicted that the ECB would expand the supply of euros by beginning to purchase sovereign bonds in 2015. That’s up from 57 percent the previous month.
“The risk that we don’t fulfill our mandate of price stability is higher than it was six months ago,” Draghi said in the Handelsblatt interview. While limited, the risk of deflation “cannot be entirely excluded,” he said, and “we have to act against such risk.”
Since the May meeting, the ECB cut its deposit rate below zero for the first time on record, began a program of targeted loans, and started purchasing asset-backed securities and covered bonds. At the same time, the dollar is strengthening as the Federal Reserve moves closer to raising interest rates.
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