EUR/USD: Euro holding up despite a lacking Pan-European response – CIBC

According to analysts at CIBC, the lack of a pan-European response to the crisis will continue to weigh on euro sentiment. They forecast the EUR/USD pair will trade at 1.11 by the end of the second quarter and at 1.14 at the end of 2020.

Key Quotes: 

“While euro sentiment remains compromised by the lack of political coherence, we’ve seen the ECB taking action by expanding its balance sheet. However, that move has been dwarfed by the additional supply of USD currently being injected into the market, which remains supportive for the EUR/USD pair.”

“Despite the lack of a pan-European response to the crisis, we regard the easing in German fiscal conditions as significant. Germany’s easing of the so-called ‘Blackzero’ policy - injecting €156bn into the economy - should result in a significant fiscal multiplier effect."

“The widening in UST-Bund spreads, by roughly 100bps since the beginning of the year, has effectively reduced the Greenback’s allure. With previous US growth and spreadbased advantages being pared back, we expect positive fund flows, due to the perpetuation of the eurozone current account surplus, to point towards modestly benefitting the euro - despite elevated political strains.”