EUR/USD set to move downward in the second half of 2021 – OCBC

Chatter about eurozone macro outperformance, but will have to see it to believe it, as economists at OCBC Bank. They forecast the EUR/USD to trend lower in the second half of the year as the European Central Bank (ECB) is set to remain more dovish compared to the Federal Reserve.

Counting on a departure from dovishness by the ECB?

“Chatter about reopening positives leading to EZ macro outperformance have been building, and is often presented as a positive risk for the EUR. However, there appears to be limited upside momentum in terms of positive data surprises, especially relative to the US. Thus, remain fundamentally suspicious of EUR-positive arguments based on EZ macro outperformance.”

“PEPP purchases may have to be slowed down in 4Q 2021, but this is not a done deal given the open split between the ECB hawks and doves. It is easy to forget that the PEPP is but one of the several asset purchase programmes, and other programmes are still ongoing.”

“Overall, expect the ECB balance sheet expansion to continue to outpace the Fed at this juncture. This belies our structural EUR-negative view in 2H 2021.” 

“Investment community long on the EUR, suggesting considerable scope for EUR declines should sentiment turn.”