02 March, AtoZForex, London – The current EURUSD theme is that the ECB cannot address what is beyond its control. Bank of America Merrill Lynch argues that the March ECB meeting might be the most difficult in recent years, since additional monetary easing may not have a sustained market affect. Market participants could be disappointed, although for different reasons than in December.
“We expect the Euro to weaken further ahead of the ECB meeting, as the bear market rally continues and investors position for more ECB easing,” Bank of America projected.
Mario Draghi should also do his best to avoid another market disappointment. BoAML would buy dips in EURUSD after the ECB meeting, or event before if markets overshoot. In overall bear market, the investment bank expects global forces to be a more significant driver for EURSUD than monetary policies.
Longer term, BoAML projects “EURUSD at parity by year-end on the back of our economists change to 2 from 3 Fed hikes this year.”
However, the addition of a significant risk of US QE has led to revised EURUSD forecast towards 1.00 by the year end from previous expectation of 0.95. Nonetheless, monetary policy divergence between the Fed and ECB still helps to guide the pair lower.
Even further out, “we expect EURUSD to appreciate again to 1.10 by end-2017, towards our estimate of its long-term equilibrium of 1.16,” Bank of America added.
The main Euro risks are to the upside. EURUSD could trade well above parity if the ECB fails to deliver this year and the Fed stays on the side-lines. A sustained Euro weakness needs either a return of risk-on sentiment, or a global recession, making the USD a safe haven risk-off currency resulting in currency flows into the US.
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