28 Oct 2013
Flash: EUR/USD may need 1.45 levels to pressure more ECB easing - RBS
FXstreet.com (Barcelona) - RBS holds a bearish view in the USD vs the EUR and GBP, notes Greg Gibbs, FX Strategist at the Bank, adding that broad-based USD weakness may extend into the next few months on benign risk constructive mood.
Key Quotes
"Our view is essentially that we are moving into another prolonged period of QE policy in the US as the Fed sits on its hands well into next year waiting through what is likely to be more modest US economic growth following a confidence hit from the recent fiscal impasse, and the uncertainty created by the fiscal debate heading into the new fiscal deadlines in Jan/Feb."
"We noted that, unlike Q1 prior to the ‘taper-talk’ when there was also no end in sight for the Fed’s QE, the rest of the world is now looking relatively stronger. Euro and especially the UK are in recovery, Japan is improving, China has recovered since mid-year and other emerging markets have stabilised. As such, the Fed’s QE will more readily result in a weaker USD."
"We noted that since Q1, Eurozone sovereign crisis fears have significantly subsided, the Euro current account surplus has continued to grow and the ECB balance sheet has been declining as banks consolidate their balance sheets and pay-back LTRO funds. The current account surplus suggests capital needs to flow out to stabilise EUR, but the higher carry in periphery Europe is attracting capital in a benign risk environment."
"Our view was that the EUR would need to rise sufficiently to pressure more significant policy easing by the ECB and/or a return of sovereign crisis fears. This could be still significantly higher than current levels, perhaps higher than 1.45."
Key Quotes
"Our view is essentially that we are moving into another prolonged period of QE policy in the US as the Fed sits on its hands well into next year waiting through what is likely to be more modest US economic growth following a confidence hit from the recent fiscal impasse, and the uncertainty created by the fiscal debate heading into the new fiscal deadlines in Jan/Feb."
"We noted that, unlike Q1 prior to the ‘taper-talk’ when there was also no end in sight for the Fed’s QE, the rest of the world is now looking relatively stronger. Euro and especially the UK are in recovery, Japan is improving, China has recovered since mid-year and other emerging markets have stabilised. As such, the Fed’s QE will more readily result in a weaker USD."
"We noted that since Q1, Eurozone sovereign crisis fears have significantly subsided, the Euro current account surplus has continued to grow and the ECB balance sheet has been declining as banks consolidate their balance sheets and pay-back LTRO funds. The current account surplus suggests capital needs to flow out to stabilise EUR, but the higher carry in periphery Europe is attracting capital in a benign risk environment."
"Our view was that the EUR would need to rise sufficiently to pressure more significant policy easing by the ECB and/or a return of sovereign crisis fears. This could be still significantly higher than current levels, perhaps higher than 1.45."