12 May 2015
EUR/USD might fall below parity over 12 months - RBS
FXStreet (Barcelona) - David Simmonds of RBS, believes that the ECB might ultimately have to do more QE, as against market expectations for an early victory, and further forecasts EUR/USD to head towards 0.98 levels in 12 months.
Key Quotes
“These are more uncomfortable times for Dollar bulls like us. There are meaningful position squeeze risks that are painful: as commodities rally, as German Bunds are sold, as periphery widens and as crowded Dollar positions are squeezed out.”
“More fundamentally, the risks we respect and fret over are around the US data and the associated prospect of Fed inaction for longer. There was never any realistic prospect of the Fed raising rates in June – our USD bullishness has never been predicated on the Fed moving that early. But it is very important (if the global policy divergence theme is to live) that US data are robust enough to have the Fed raising policy rates at some point this year.”
“The USD can't realistically rise further if Fed tightening is either pushed very far into the distant future or cancelled altogether.”
“The risks around which we are more relaxed might loosely be termed Euro zone 'reflation' risks: the idea that Euro zone growth recovery accelerates further, that private sector credit taps are turned back on, that the ECB can rethink its QE strategy in terms of doing less and finishing earlier.”
“We still believe that, far from declaring victory early, the ECB may well ultimately have to do more QE as existing policy settings are unlikely to deliver Euro zone inflation back to target. We still think EUR/USD falls to 0.95 in 12 months.”
Key Quotes
“These are more uncomfortable times for Dollar bulls like us. There are meaningful position squeeze risks that are painful: as commodities rally, as German Bunds are sold, as periphery widens and as crowded Dollar positions are squeezed out.”
“More fundamentally, the risks we respect and fret over are around the US data and the associated prospect of Fed inaction for longer. There was never any realistic prospect of the Fed raising rates in June – our USD bullishness has never been predicated on the Fed moving that early. But it is very important (if the global policy divergence theme is to live) that US data are robust enough to have the Fed raising policy rates at some point this year.”
“The USD can't realistically rise further if Fed tightening is either pushed very far into the distant future or cancelled altogether.”
“The risks around which we are more relaxed might loosely be termed Euro zone 'reflation' risks: the idea that Euro zone growth recovery accelerates further, that private sector credit taps are turned back on, that the ECB can rethink its QE strategy in terms of doing less and finishing earlier.”
“We still believe that, far from declaring victory early, the ECB may well ultimately have to do more QE as existing policy settings are unlikely to deliver Euro zone inflation back to target. We still think EUR/USD falls to 0.95 in 12 months.”