Outlook for EUR/USD: Deutsche Bank, Credit Suisse Stay Bearish
The EUR/USD pair is forecast to hit range lows on a host of negative fundamental factors for the Euro.
The Euro has risen against the US Dollar in mid-week trade with the pair trading to 1.0924.
Despite the strength, we hear traders should look to sell into strength with analysts at Deutsche Bank suggesting notable downside remains on offer.
According to analysts, the Euro’s collapse against the Dollar has a lot to do with the increased expectations that the Federal Reserve will increase interest rates at the end of the year.
But there are other reasons too.
Deutsche Bank say the breakdown also has its roots in, “European political uncertainties that will soon clash with new US fiscal probabilities; path dependent trades triggered by a break of old ranges; China’s ‘opportunistic’ weaker currency policy and reserve rebalancing considerations; and the EUR’s evolving status as the medium-term G3 funding currency of choice in the global hunt for yield.”
The stronger outlook for emerging markets which has seen a broad recovery in the MSCI global share Index is a factor against increasing Euro strength as it lessens repatriation flows.
Repatriation flows are normally strongest during periods of global risk aversion when investors are trying to get out of emerging market assets which were originally bought using borrowed Euros, due to the region's low borrowing costs.
Deutsche add that it is too early to stand in the way of recent breakdowns even if it will “take till new year” before they fulfill their downside potential.
This echoes the views of those held at Danske Bank where analysts warn the decline in the Euro could extend into year-end.
“The cumulative nature of the above factors works with EUR/USD challenging the year lows at 1.0711 soon, and plays to our 1.05 EUR/USD year-end forecast,” say Deutsche.
A break below those range lows, however, would require a bigger fundamental catalyst or “policy event”, which may be political in nature, but hasn’t yet happened.
Credit Suisse: Chase EUR/USD Lower
Meanwhile, we are told by eFXplus Orders that Credit Suisse maintain their short EUR/USD targeting a move to 1.0615.
EURUSD paused to catch its breath holding near the recent lows but, "this leaves the trend still directly lower to test price support next at 1.0826/22 ahead of the January low at 1.0711."
Furthermore, Credit Suisse say:
"We would expect to see a bounce here, but beneath it can expose the lower end of the medium-term range at 1.0610/05. We would look for a fresh floor to be found here.
"Resistance moves to 1.0912/16 initially, then 1.0952/63, with 1.1002/39 ideally capping to keep the trend directly lower.
"Bigger picture, we continue to look for an eventual move to parity, and likely lower.
"Whilst we remain bearish EURUSD, it is worth noting though rises in EUR real rates can often be associated with a stronger EURUSD. If we do see 10yr EUR real rates establish a bearish reversal above 1.19%, there is a risk this may well dampen EURUSD weakness,arguing that support at 1.0610/05 should continue to hold for the time being."