13 Jan 2015
EUR/USD and the recovery: weak now, rather than later – Danske
FXStreet (Barcelona) - The Danske Bank Team expects EUR/USD weakness to persist in H12015 but H2 should see euro recover, anticipating oil and inflation to bottom out by H1 2015.
Key Quotes
“One of the key drivers behind our call for EUR/USD to rebound following H1 weakness is our view that FX markets will most certainly be taken by surprise by the euro-area recovery that we envisage. Provided the ECB delivers on QE in H1, we believe EUR/USD softness will be a story for H1 mainly, paving the way for a EUR/USD rebound in H2 driven not least by an improving growth (and inflation) outlook.“
“Indeed, while some easing from the ECB is already priced into the single currency, we expect the FX market to react quickly and effectively to a sovereign ECB programme, i.e. a sharp sell-off will likely be seen in EUR crosses.”
“We note also that the political risk premium (fuelled by concerns over Greece and Russia), which is currently acting as a drag on the EUR, should subside going into H2 with clarity surrounding the former likely materialising already in Q1 (admittedly, the Russian issue could stick around for longer).”
“To the extent that the euro recovery is fuelled by oil prices reaching a bottom in H1 - and thus likely headline inflation with it - this should also help pave the way for EUR upside.”
Key Quotes
“One of the key drivers behind our call for EUR/USD to rebound following H1 weakness is our view that FX markets will most certainly be taken by surprise by the euro-area recovery that we envisage. Provided the ECB delivers on QE in H1, we believe EUR/USD softness will be a story for H1 mainly, paving the way for a EUR/USD rebound in H2 driven not least by an improving growth (and inflation) outlook.“
“Indeed, while some easing from the ECB is already priced into the single currency, we expect the FX market to react quickly and effectively to a sovereign ECB programme, i.e. a sharp sell-off will likely be seen in EUR crosses.”
“We note also that the political risk premium (fuelled by concerns over Greece and Russia), which is currently acting as a drag on the EUR, should subside going into H2 with clarity surrounding the former likely materialising already in Q1 (admittedly, the Russian issue could stick around for longer).”
“To the extent that the euro recovery is fuelled by oil prices reaching a bottom in H1 - and thus likely headline inflation with it - this should also help pave the way for EUR upside.”