Conflicting EUR/USD Forecasts Seen at the Start of November: Parity or 1.20 Ahead?
Institutional forecasters and brokers are split on how far the present weakness in the euro exchange rate complex is likely to run for.
Two events have combined to work in favour of a lower euro to dollar exchange rate in the back-half of October:
- The ECB informing us they may cut rates again in coming months and
- The US Federal Reserve informing us that they will start raising rates in coming months.
On the outcome of the FOMC the euro corrected by a full 200 pips, hitting a low of EUR/USD 1.0897.
With interest rate yields moving in opposite directions the euro has headed lower agianst the dollar as global money flows look to take advantage of the increased return offered by the US.
Can the dynamic continue, or will the euro dig in its heels and push higher again?
"With the ECB’s new stance a week ago, and the Fed’s last night, the divergence between the two central banks has further widened. Therefore, we have revised downwards our forecasts for the exchange rate," says Asmara Jamaleh with Intesa Sanpaolo in Madrid.
The bank has moved EUR/USD from 1.10 to 1.08 in a 1 month horizon. The 12 month horizon sees a downgrade from 1.15 to 1.13.
The euro should not be under-estimated as it has already thwarted those forecasters who suggested euro / dollar parity would be a feature of 2015.
There are now a number of analysts out there who take the view that 1.20 in EURUSD is possible in the 12 month timeframe - HSBC and Danske Bank believe a 10+ big figure move is likely.
There is the chance that the ECB could hold back on cutting rates further should they believe the US FED will move on rates; this is an upside risk to the euro exchange rate complex that should not be under-estimated in our view.
Indeed, the forecasts already mentioned from Intesa Sanpaolo put the exchange rate firmly above 1.10 in a 12 month horizon.
"It could be argued that the Fed statement, likely encouraging a cheaper EUR, may have proved to do some of the work of the ECB," notes Jeremy Stretch, analyst at CIBC.
The Nearer-Term Picture
The ECB debate is a matter for the euro over a multi-month timeframe we believe, as such there is room for further declines.
"Having seen EUR USD break sharply lower in the wake of the Fed statement we would look for downside risks to ultimately perpetuate. We would prefer to sell EUR rallies up to 1.0990, looking for a test of strong support at 1.0848," says Stretch.
It is argued that a close below 1.08 will open up a test of ’15 lows below 1.05.
Only a weekly close above the 200-day MAV at 1.1113 would likely negate maintaining a negative EUR bias notes the CIBC analyst.
Yann Quellenn at Swissquote believes that consolidation is on the cards:
"EUR/USD is now consolidating after breaking hourly support at 1.0989 (23/10/2015 low). Hourly resistance is given at 1.1387 (20/10/2015 low).
"Stronger resistance can be found at 1.1561 (26/08/2015 low). Expected to show continued consolidation of the pair."