“EURUSD steadies and a short-term bounce looks overdue—in line with a still quite oversold market and seasonal patterns through late Q1 and early Q2 which favour EUR gains,” says analyst Shaun Osborne at TD Securities.
At the time of publication the euro dollar rate is seen 0.67 pct higher on a day-to-day comparison at 1.0616.
The euro is also heading higher against the British pound; EUR/GBP is 0.80 pct higher at 0.7122.
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“The euro’s months long slide gathered pace this week after the ECB hit the start button on its gigantic bond buying program. The impact of the bank’s trillion euro program has been immediate, sending area interest rates sharply lower, which has watered down the euro’s value,” notes Joe Manimbo, analyst at Western Union.
Manimbo cautions that the euro’s bounce should prove short-lived as decidedly bearish fundamentals will leave it vulnerable to fresh selling pressure, a fall to and maybe below, parity is forecasted.
It has been suggested that if the current pace of EUR depreciation continues, the EUR would hit zero around mid-year.
This is of course highly unlikely and with most analysts forecasting parity in EURUSD being reached by year end we expect declines to moderate.
Keep in mind that Bloomberg data highlights that March and April have been the best two months of the year for the EUR in the past 10 years.
Could seasonality combine with a corrective bounce to take the euro back to higher levels?
Osborne answers:
“Even if EURUSD does rebound near-term, we rather think short-term strength will only give the markets better levels to sell into; ECB QE will drive investors out of low (negative) yielding assets into higher yielding assets and we firmly believe that the Fed can achieve rate lift off later this year.”
“The assumption of relative growth and monetary policy superiority versus the Eurozone and Japan over the coming years underscores the potential for the USD bull trend to extend in line with its longer-term secular trends - roughly eight years up and eight years down on average since the 1970s,” says a note to clients issued by TD Securities.
We look to be about half-way through the current bull phase.
“Corrective EUR gains in the next few weeks (to the 1.08/1.10 region if that sort of bounce develops) are a sell against 1.11,” says Osborne.