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20 May 2015
EUR/USD likely to end this quarter around 1.09 levels – Nomura
FXStreet (Barcelona) - FX Strategists at Nomura, share their forecasts for EUR/USD, noting that the downtrend for the pair is likely to be slower.
Key Quotes
“Recent ECB commentary, particularly Coeure’s comments that QE should be front-loaded to counter seasonality, suggest that the ECB is looking to calm markets, and lean against additional bond market volatility (and perhaps even EUR gains). This makes it substantially more likely that we will hold below 1.15 in EURUSD, and that a downtrend (in line with better US data) is about to resume.”
“Nevertheless, given that we may have moved beyond peak flows, and given that historical Sharpe ratios in the EUR trade have deteriorated, the trend is likely to be slower.”
“Complicating the picture further are swings in equity flows. Over the past few months we have seen very elevated equity flows, but ETF and mutual fund flows indicate that this flow has slowed materially, both in hedged and unhedged terms. Hence, we are not inclined to put a huge weight on this at the moment. But it is something we are watching.”
“Against this background, a reasonable target for EURUSD for Q2 is around 1.08-1.10, in our view. We are making a marginal revision to our previous Q2 1.08 target, now penciling in 1.09 for the end of this quarter. For now, 1.05 is still very possible in Q3 2015 and we stick to that target for now. Really breaking parity in EURUSD is likely to take a very strong US outlook, and potential for a series of Fed hikes, and that type of clarity can only emerge in 2016, not 2015, it seems.”
Key Quotes
“Recent ECB commentary, particularly Coeure’s comments that QE should be front-loaded to counter seasonality, suggest that the ECB is looking to calm markets, and lean against additional bond market volatility (and perhaps even EUR gains). This makes it substantially more likely that we will hold below 1.15 in EURUSD, and that a downtrend (in line with better US data) is about to resume.”
“Nevertheless, given that we may have moved beyond peak flows, and given that historical Sharpe ratios in the EUR trade have deteriorated, the trend is likely to be slower.”
“Complicating the picture further are swings in equity flows. Over the past few months we have seen very elevated equity flows, but ETF and mutual fund flows indicate that this flow has slowed materially, both in hedged and unhedged terms. Hence, we are not inclined to put a huge weight on this at the moment. But it is something we are watching.”
“Against this background, a reasonable target for EURUSD for Q2 is around 1.08-1.10, in our view. We are making a marginal revision to our previous Q2 1.08 target, now penciling in 1.09 for the end of this quarter. For now, 1.05 is still very possible in Q3 2015 and we stick to that target for now. Really breaking parity in EURUSD is likely to take a very strong US outlook, and potential for a series of Fed hikes, and that type of clarity can only emerge in 2016, not 2015, it seems.”