lundi 13 avril 2015
EUR/USD: Towards 1.15 Or Below 1.00 - JP Morgan
Posted on 20:24 by nice news
JP Morgan's EUR/USD forecast profile is unchanged this month and continues to show a slower decline for the rest of the year, after an unprecedented -11% drop in Q1. JPM's Quarter-end targets are 1.07 in Q2, 1.06 in Q3 and 1.05 in Q4.
"Downside targets would be more aggressive were it not for the US dollar’s valuation problem and the Fed’s gradual pushback on a strong currency," JPM argues.
"Based on JPM’s expectations that the ECB balance sheet expands to €3.5trn by end 2016 and that 5-yr spreads might move about 50bp in the US’s favour, EUR/USD’s fair value is about 1.12 (blue cell in table 1). The euro's current level near 1.06 would be justified if the ECB balance sheet were heading to €5trn (unlikely given how Euro area growth is improving) or the USEuro 5-yr spread would widen to over 300bp over the cycle (unlikely as the Fed dots fall towards the money market curve due to mediocre US growth)," JPM adds.
"So while we know that currencies can undershoot for some time until a macroeconomic or policy catalyst emerges, we are reluctant to forecast trend extensions that have little empirical basis," JPM argues.
The upside risk to this view, according to JPM, could probably take EUR/USD/ towards 1.15 over the coming months if one or more of these 2 scenarios materialize:
(1) US economy slows to below trend or fails to generate any wage or inflation pressure, causing the Fed to delay tightening until 2016; (2) Euro area growth accelerates to 3% at some point in 2015, forcing a sharp repricing of money market rates and attracting significant foreign equity inflows.
In the mean time, the downside risk to this view, according to JPM, could probably take EUR/USD below 1.0 if one or more of these 3 scenarios materialize:
(1) the Fed signals commitment to June hikes (not priced); (2) the Greek
"Downside targets would be more aggressive were it not for the US dollar’s valuation problem and the Fed’s gradual pushback on a strong currency," JPM argues.
"Based on JPM’s expectations that the ECB balance sheet expands to €3.5trn by end 2016 and that 5-yr spreads might move about 50bp in the US’s favour, EUR/USD’s fair value is about 1.12 (blue cell in table 1). The euro's current level near 1.06 would be justified if the ECB balance sheet were heading to €5trn (unlikely given how Euro area growth is improving) or the USEuro 5-yr spread would widen to over 300bp over the cycle (unlikely as the Fed dots fall towards the money market curve due to mediocre US growth)," JPM adds.
"So while we know that currencies can undershoot for some time until a macroeconomic or policy catalyst emerges, we are reluctant to forecast trend extensions that have little empirical basis," JPM argues.
The upside risk to this view, according to JPM, could probably take EUR/USD/ towards 1.15 over the coming months if one or more of these 2 scenarios materialize:
(1) US economy slows to below trend or fails to generate any wage or inflation pressure, causing the Fed to delay tightening until 2016; (2) Euro area growth accelerates to 3% at some point in 2015, forcing a sharp repricing of money market rates and attracting significant foreign equity inflows.
In the mean time, the downside risk to this view, according to JPM, could probably take EUR/USD below 1.0 if one or more of these 3 scenarios materialize:
(1) the Fed signals commitment to June hikes (not priced); (2) the Greek
EUR/USD: Towards 1.15 Or Below 1.00 - JP Morgan
Categories: EUR/USD: Towards 1.15 Or Below 1.00 - JP Morgan
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