According to Jane Foley, senior FX strategist at Rabobank, the relative weakness of EUR through most of this year can be linked to disappointing Eurozone growth data, expectations regarding more policy accommodation from the ECB and an increase in political jitters stemming from the forthcoming general election in Spain and the May European parliamentary elections
Key Quotes
“The darkening of the skies over Eurozone fundamentals this year provides a compelling reason why is would be a mistake to judge the outlook for the USD based purely on US fundamentals. The domestic derived factors behind the outlook for the USD have certainly weakened in recent months; concerns about the US growth trajectory have become more widespread and the Fed has adopted a less hawkish policy stance. However, the USD is not likely to undergo a broad based period of weakness when the fundamental backdrops behind other major currencies has also become less attractive. Given the relatively higher yield afforded to the USD, we see scope for some modest USD appreciation vs. the EUR on a 3 month view towards the EUR/USD1.12 area.”
“How EUR/USD trades over the coming 24 hours or so is likely to be guided by the commentary of ECB President Draghi. On the back of recent weakness in Eurozone economic data, the ECB is widely expected to cut its growth forecasts. Insofar as this is largely priced in, a new set of numbers should not have a significant market impact. That said, how large the ECB judges the downside risks to growth to be will nevertheless be key.”
“A dilution of the dominance of centrist parties in Europe particularly at a time of slowing growth is likely to make investors anxious and the EUR a hard sell.”
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