Exchange rate forecasters at Morgan Stanley, BNP Paribas and HSBC have lowered their predictions once more for the euro dollar rate.
The euro continues to come under pressure against the G10 majors with signs that the European Central Bank (ECB) is absolutely determined to pump yet more cash into the Eurozone.
This flood of euros to the market will continue to exert downward pressure on the exchange rate. However, it won't always be one-way action - expect sharp short-term bounces to occur, particularly after extended USD gains.
However, following recent declines we have seen the shared currency enjoy some relief buying. The currency is at discounted levels which may also be attracting some real-money interest.
Euro rate today - levels for reference:
The euro to pound exchange rate is 0.22 pct lower: 1 EUR = 0.7852 GBP.
The pound to euro exchange rate: 1 GBP = 1.2737 EUR. (See historical data, charts and best rate finder).
The euro to US dollar exchange rate: 0.21 pct lower, 1 EUR = 1.2630 USD.
The euro to Australian dollar exchange rate: 0.78 pct lower, 1 EUR = 1.4329 AUD.
Forecasts for Euro Lowered Once Again at Morgan Stanley
Morgan Stanley warn that while their bearish EUR projections have been reached early but there seems more weakness in store.
"Hence we have lowered our EURUSD projections once again. We expect EURUSD to head towards 1.14 by the middle of next year," says an exchange rate forecast note issued by the team at Morgan Stanley.
EMU’s core inflation rate falling back to 0.7% indicated that dis-inflationary trends have remained strong.
"The ECB remains determined to get the balance sheet to 2012 levels, indicating further EUR downside from here," say Morgan Stanley.
Euro Rate Today: How Low Can the Euro Go?
We hear more forecasts on the likely path to be assumed by the euro dollar rate.
BNP Paribas have told clients that their forecasts for the US and eurozone economies project the EUR/USD will fall to 1.25 and 1.20 by end 2015 and end 2016, respectively.
"As the markets are forward looking, we can assume that these levels will be discounted in the spot market far earlier Thus our model’s projections are consistent with our forecasts which suggest a continued fall in EURUSD, albeit at a slower pace than seen recently."
The euro is also at risk of the moderate levels of positioning that remain in place amongst investors.
"Our BNP Paribas positioning analysis shows net USD longs at +29 (on a scale of -50 to +50) which is far enough below the recent peak of June 2012 at +42 to prevent extended positioning from being a risk," says the French bank.
Charts Foretell of Declines
Adding to the overwhelmingly negativity on the shared currency, BNP tell us the charts are suggesting little let up in the downside pressures are available:
"A potential ten-year head and shoulders topping pattern exists on the EURUSD monthly candlestick chart, with May’s recovery peak at 1.3989 marking the right shoulder.
"The current slide from 1.3989 is on course to extend towards the head and shoulders’ neckline in coming months.
"This line connects the 2005, 2010 and 2012 lows at 1.1644, 1.1881 and 1.2047, respectively, and currently intersects at almost exactly 1.21, rising only slightly per month."
HSBC Also Predicting Euro Falls
In a note to clients HSBC Holdings say that while their G10 forecasts have long encompassed a bullish USD theme some modifications are required:
"On this basis, the divergence in monetary policy between the Fed and the ECB will likely see EUR-USD much lower.
"Our forecast for the end of next year is 1.19, and the downside might be larger if we did not anticipate some push-back from US authorities against too swift a rise in the USD.
"After a fall from 1.40, one could argue that the prospective divergence in policy is already in the price of EUR-USD, but there is likely still a high level of market scepticism about whether the ECB will ultimately deliver full-blown QE. We believe they will, and so there is a further adjustment lower in the EUR to come."