11 May, AtoZForex, London – Deutsche Bank has revised its EURUSD and USDCAD forecast paths moderately higher and lower accordingly in recognition of two major developments and a rebound in Crude oil prices since the turn of the year.
First, the increasingly apparent limitations of central bank around the globe monetary policy constrains and the resulting European Central Bank shift away from negative rates as a form of easing.
Second, increasing Fed sensitivity to global developments and risks, which has shifted the distribution of US interest rate hikes away from the modal four anticipated at the beginning of the year to just two.
EURUSD forecast path
That being said, “we remain EURUSD bears expecting the next move outside of the well-defined 1.05-1.15 range to be down,” Deutsche Bank projected. Fed pricing has overshot the market with the risks skewed towards at least one rate increase this year against market pricing of one rate hike every twelve months.
“The ECB also has materially greater scope to ease policy as evidenced by the significant risk premium embedded in European risk assets as well as the steepness of the GDP-weighted yield curve,” Deutsche Bank added. In the interim, the flow picture remains unabatedly negative, with continued large currency outflows from the EU as the process of persistent portfolio re-balancing into foreign assets continues, also known as the Euroglut phenomenon.
USDCAD forecast path
Deutsche Bank has revised its USDCAD forecast path lower following a rebound in Crude oil prices and a slower pace of Fed tightening than originally anticipated.
“USDCAD should peak around 1.35 this year and slightly above 1.40 next year on expectations that the Fed will resume its tightening cycle, and if they don’t it will be because of a less than CAD friendly risk negative environment,” Deutsche Bank noted.
Trade of goods is likely to remain a significant drag even with improving US growth next year. By then, “the fiscal impulse is likely to have gained a little traction limiting the CAD fall-out to below the CAD’s 2016 January peak at 1.4690,” Deutsche Bank finished.
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