EUR/USD: Euro unlikely to be significantly impacted by ECB package – MUFG
|Analysts at MUFG Bank, see that more easing from the European Central Bank is well priced, they see a larger cut. Regarding the EUR/USD pair, they see it trading in the 1.0500-1.1300 range over the third quarter and between 1.0600-1.1400 during the fourth.
Key Quotes:
“The euro drifted further lower in August as the financial markets increasingly positioned for aggressive monetary easing by the ECB at its upcoming monetary policy meeting on 12th September. President Draghi already signalled easing at the last meeting in July but additional comments from ECB Council Member, Olli Rehn have reinforced expectations of aggressive action. In August he stated that the ECB should announce an “impactful and significant” stimulus package in order to overshoot market expectations. The OIS curve over the coming 12mths has shifted lower, by about 6-7bps indicating increased speculation on a larger rate cut at the meeting. We expect a larger than consensus cut of 20bps in the deposit rate to - 0.60%; the introduction of a tiering system on the deposit facility and confirmation of QE being re-activated, in Q4 possibly in October.”
“One downside risk that is likely to recede going forward relates to fiscal uncertainty in Italy fuelling BTP volatility and EUR selling. The potential coalition between Five Star and the Democratic Party is likely to be more fiscally responsible and helped drive 10-year BTP yields below 1.00% for the first time ever. However, of course we are assuming a no-deal Brexit and hence political risks will still drive EUR lower.
“We have maintained our forecast levels from last month and are based on the assumption of aggressive ECB easing in September and a no-deal Brexit dragging EUR/USD lower into year-end. Some modest recovery in H1 2020 is probable from extreme under-valued levels if euro-zone growth recovers modestly by then.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.