EUR/USD: Gradual Downtrend; Where To Target?
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Bank of Tokyo-Mitsubishi (BTMU) expects the ECB to act on 10th March with a faster pace of QE for longer coupled with a deposit rate cut.
"The divergence in economic performance with the US is becoming more apparent again. The euro remains vulnerable to the downside but with ECB action in March better priced than FOMC action at any point this year, we will need markets to become more confident of FOMC action if EUR/USD is to fall," BTMU argues.
As such, BTMU thinks that whatever the outcome of next week's ECB meeting, its sense is that broader market conditions and FOMC policy action will be more important in determining the direction of the euro.
"We do not expect the euro to drop dramatically over the forecast period given the euro-zone’s sizeable current account surplus. ECB easing coupled with no escalation in financial market turmoil and Fed rate increases will act to only modestly weaken the euro.
BTMU targets EUR/USD at 1.06, 1.04, 1.04, and 1.03 by the end of Q1, Q2, Q3, and Q4 respectively.
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