Where To Target EUR/USD In 2015?

Focus of the day:

"...The renewed pressure on the EUR does not end with monetary policy expectations and market indicators. Political uncertainty is also likely to build following the first round of the Greek presidential election...The political uncertainty building within Europe is set to be a major theme over the coming year, we believe, where several elections are likely to highlight a shift away from mainstream parties towards smaller, often more EMUskeptical political parties, throughout Europe. This is likely to add to the longer-term EUR bearish theme, in our view

As a result, w e expect the EUR to come under continued pressure over the coming year and reiterate our view of EURUSD extended towards the 1.12 area. This base case projection assumes no QE from the ECB and is formed around the scenario that the current announced measures are set to weaken the EUR via portfolio outflows, increased bank lending (EUR used as a funding currency) and currency hedging of outstanding positions.

However, if the ECB does move to QE in the coming months, this would likely take us to our 1.12 target more rapidly and put the focus on our EUR bear case scenario, where we project EURUSD down to 1.05 for end-2015."

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