EUR/USD seen testing 2021 lows in the current quarter – CIBC

Analysts at CIBC, forecast the EUR/USD pair at 1.17 for the third quarter and at 1.15 by the first quarter of 2022. They point out that an extended period of policy inactivity from the European Central Bank, in contrast to the Federal Reserve, underlines a continued paring of real money EUR longs. 

Key Quotes: 

“The June ECB meeting had President Lagarde suggesting that the risks around the economic outlook were broadly balanced, for the first time under her tenure. The increasingly supportive outlook, demonstrated by strong gains in forward looking survey data, underline a substantive increase in activity and inflation expectations for both this year and 2022. Despite the stronger growth trajectory, once the postpandemic base effects wear off, the bank still assumes that prices will remain well below target at the end of the forecast profile in 2023.”

“The uptick in forward looking survey data validates a strong recovery dynamic. After a slow start, the eurozone’s vaccine rollout has gathered pace, with the proportion of the eurozone population full vaccinated now only just behind the G-7 average. Although the prospect of a broad re-opening has resulted in a sharp upgrade in private consumption expectations, we do not expect the ECB to be as activist as either the Fed or some other central banks in Europe, such as the Norges bank.”

“While the eurozone is set for a strong growth trajectory into H2, inflation is set to remain below target, in part due to the lack of second round wage effects. With longrun inflation expectations continuing to run below target, although ECB policy hawks may become more vociferous due to recovery dynamics, and may press for tapering at the September meeting, we expect the ECB to remain patient. An extended period of ECB policy inactivity, in contrast to the Fed, underlines a continued paring of real money EUR longs, with EUR/USD testing 2021 lows in the current quarter as a result.”