EUR/USD to sink towards 1.16 shrugging off ECB hawkishness – Credit Suisse

Economists at Credit Suisse are still holding onto their medium-term 1.1600 EUR/USD target given that unless euro area economic data post consistent upside surprises in coming months, it is hard to get excited about the idea of a strong upward trend in EUR/USD.

See: EUR/USD set to rise on weak US data amid hawkish ECB commentary – SocGen

Hard to get excited about the idea of persistently rising euro area rates

“Unless euro area economic data post consistent upside surprises in coming months, especially on the inflation front, it is hard to get excited about the idea of persistently rising euro area rates and associated rate differential tightening between the US and euro area, and by extension a strong upward trend in EUR/USD.”

“It is difficult to imagine a central bank that is relying on a weaker exchange rate to offset any upward pressure on rates that comes from tightening spillovers from the US being readily accepting of much narrower US – euro area rate differentials and a EUR/USD rate that’s moving persistently higher.”

“We are still holding onto our medium-term 1.1600 EUR/USD target, and we would be minded to sell on a rally above 1.2000 spurred by the idea that a reduction in PEPP purchases implies systematic and long-lasting tightening.” 

“We suspect ECB chief Lagarde and other officials have the capacity to use verbal intervention to short circuit any persistent rates jump, much as Fed officials have proven in terms of US rates over the course of this year.”