SEB Bank see no Euro / Dollar Exchange Rate Parity in their Forecasts
Updated forecasts for the euro v dollar exchange rate from SEB Bank suggest calls for parity are over-exaggerated.
While most institutional analysts are predicting declines in EUR-USD to characterise the remainder of the year the extent of these declines remains open to debate.
In their most recent forecast on euro / dollar Goldman Sachs have said they are reiterating their call for a 1:1 exchange rate to be achieved in 2015, specifically the investment bank maintains its EUR/USD forecasts at 0.95 in 12 months and 0.80 by end of 2017.
SEB, a leading corporate Nordic bank have meanwhile just updated clients with the view that declines in the euro will likely be shallower.
The calls come as the euro to dollar rate continues to tread what is now a familiar range. The euro opened the week on the decline, and on the failed attempt to re-enter the 1.14 area it corrected as far as EUR/USD 1.1220.
June’s euro area PMIs were of no help while the dominant geo-political theme of Greece has done little to break the EURUSD out of familiar territory.
SEB Upgrade Forecasts for EURUSD
The range-bound theme is likely to persist longer says Richard Falkenhäll, senior currency strategist at SEB, a leading corporate Nordic bank.
Commenting on the outlook Falkenhäll says:
“While our base scenario for the Fed remains a rate hike in September, this has become less likely since the June rate decision and Yellen press conference. As the outlook for the dollar is closely linked to Fed policy we have lowered our near-term USD forecasts to reflect the increased probability of a more dovish outcome in September.
“We have revised our 1m EUR/USD forecast to 1.13 (1.10) and to 1.08 by the end of Q3 2015. It seems the currency pair faces difficulty breaking above the 1.15-level, which means levels between 1.14 and 1.15 seems like an attractive entry for a short EUR/USD exposure with a strong horizon.”
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Greece is a Key Positive Risk
There could be further support to the euro exchange rate complex should a positive outcome to the Greek debt impasse emerge.
SEB have told clients they would stay cautious and await the outcome of negotiations between Greece and its creditors as a solution to ensure Greece does not default on its debt payments or abandon the euro as this would probably provide additional knee-jerk support for the common currency in the near term.
“This could well drive EUR/USD a few big figures higher from today’s level. However, price action in recent weeks resulting in a stronger euro provides little support for the view that a Grexit has been discounted at all, which may limit the size of the reaction on a positive outcome,” says Falkenhäll.
Eurozone Economic Activity Picks Up Pace
While markets are certainly watching Greece we would argue that only an extreme outcome will have a significant impact on euro dollar trading.
We reckon that data will be the ultimate driver of the exchange rate complex over coming months and it is for this reason that improving economic activity should be seen as a significant floor to the EURUSD.
June brought good news on the PMI front as the composite PMI rose to 54.1 from 53.6, surprising to the upside and confirming that the eurozone is recovering nicely.
“This is the highest reading in four years and, at face value, the PMIs are consistent with 0.4-0.5% qoq GDP growth in 2Q15 – in line with our forecast,” says economist Edoardo Campanella at UniCredit Bank.
The eurozone data breakdown shows ongoing moderate employment growth and improving pricing power.
“Looking at 2H, we continue to expect an acceleration in the eurozone recovery, mostly supported by the FX channel,” says Campanella.
