9 Jul 2015
EUR/USD parity expected by year-end – BofA
FXStreet (Barcelona) - FX Strategists at BofA-Merrill Lynch, remain bearish on EUR/USD, and expect policy divergence to drag the pair lower towards parity by 2015-end.
Key Quotes
“We see negative EUR risks in the short-term. Our view remains that tail risks in Greece are negative for the Euro. We have also argued that negative net supply should bring Bund yields down in July, also weighing on the Euro. And our positioning analysis suggests that hedge funds are now long EUR for the year and therefore have room to re-establish short positions.”
“We still expect EUR/USD at parity by the end of the year. Our projection assumes that US data will improve in the second half of the year, the Fed will start hiking rates in September, the ECB will push against the recent sell-off in rates, inflation will remain below the ECB’s target path, and the market will start expecting the ECB to continue with QE after September 2016.”
“We do not expect Grexit in our baseline, but risks have increased substantially and could weigh on the Euro looking forward.”
“At the same time, we expect the Fed to push against any strengthening of the USD that goes beyond what data would justify.”
“Positive risks to our EUR/USD projection include a Fed rate hike in December or later, and a comprehensive deal in Greece, with the former more important.”
“Negative risks to our projection include Grexit and a surprising increase in US inflation that could force a more aggressive Fed tightening.”
Key Quotes
“We see negative EUR risks in the short-term. Our view remains that tail risks in Greece are negative for the Euro. We have also argued that negative net supply should bring Bund yields down in July, also weighing on the Euro. And our positioning analysis suggests that hedge funds are now long EUR for the year and therefore have room to re-establish short positions.”
“We still expect EUR/USD at parity by the end of the year. Our projection assumes that US data will improve in the second half of the year, the Fed will start hiking rates in September, the ECB will push against the recent sell-off in rates, inflation will remain below the ECB’s target path, and the market will start expecting the ECB to continue with QE after September 2016.”
“We do not expect Grexit in our baseline, but risks have increased substantially and could weigh on the Euro looking forward.”
“At the same time, we expect the Fed to push against any strengthening of the USD that goes beyond what data would justify.”
“Positive risks to our EUR/USD projection include a Fed rate hike in December or later, and a comprehensive deal in Greece, with the former more important.”
“Negative risks to our projection include Grexit and a surprising increase in US inflation that could force a more aggressive Fed tightening.”