20 July, AtoZForex.com, Lagos – Factors driving down the euro are in multiples, argues some market pundits. Some other fundamental reasons which have generally seen to possibly weigh on the bloc-currency in the long run, including:
- Comparatively, recent data surprises have favoured the USD, but have been against the Euro,
- EUR portfolio flows may now also suffer as we approach the heavier summer government bond redemption schedule,
- Past data show that EM weakness coincided with EUR downside as any pressure on EM reserves, which we consider quite likely in this environment, would result in EUR selling to replenish USD reserve allocations
- The fast decline in oil prices is also likely to pose new risks to the inflation outlook, considering that ECB’s inflation projections appear too optimistic in any case.
In its weekly FX pick to clients, Deutsche Bank advises that Currency investors should consider selling EUR/NZD this week.
From Deutsche Bank’s EURNZD Outlook, the bank expects further declines on the pair, as the kiwi is expected to triumph against the euro. From the medium term perspective, the bank: “Remains bearish on NZD, but being short the cross represents a counter consensus trade that could benefit from a quiet summer period,” indicating as a rationale behind this call.
Aside the medium term view, the Deutsche Bank adds the following remark: “Market pricing has already moved considerably in New Zealand after poor recent dairy auctions with 50bp cuts priced to year end, while commodity price declines should eventually prompt more ECB dovishness.“