EUR/USD: Third wave to weigh on euro into mid-year – CIBC

Analysts at CIBC expect the EUR/USD pair to trade at 1.16 by the end of the second quarter and at 1.18 by the end of the third. They consider the euro will struggle against a stronger dollar in the near-term. 

Key Quotes: 

“The first quarter witnessed the single currency depreciate by around 4% versus the USD. Real money and speculative investors pared EUR holdings amidst concerns over eurozone recovery hopes being compromised by a third Covid wave. Moreover, EU vaccination rollout has been bedevilled by political mismanagement, while vaccine hesitancy proved to be amplified by unhelpful political comments.”

“While the ECB will maintain an easy monetary stance, the fiscal backdrop relative to the US remains somewhat constrained. While the agreement on the EU rescue fund was a truly ground breaking decision, the failure to push forward and actually disburse the funds remains an ongoing concern.”

“Sliding macro sentiment has seen leveraged shorts extend to levels last seen before the EU rescue fund decision. Despite the early year growth headwinds prompting a lower EUR trading trajectory than previously assumed, we do not expect the EUR to unwind H2 2020 gains. A somewhat belated ramping up in vaccinations will help to limit macro negativity ahead.”

“An uptick in vaccinations in the weeks ahead will add to already elevated forward looking eurozone sentiment indicators. While the EUR will struggle against a still resurgent greenback in the near term we would expect a mild rebound into H2 as growth dynamics become more supportive.”