Euro headed for a downwards journey – MUFG

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Oct 23, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, suggests that with the ECB likely to ease monetary policy further in December which could include lowering the deposit rate deeper into negative territory and/or expanding their QE programme, the euro is likely to continue to weaken in the near-term.

    Key Quotes

    “The euro has weakened sharply following yesterday’s ECB monetary policy meeting. The sharp weakening of the euro has been driven by the strong signal from the ECB that it will soon ease monetary policy further which is likely to be delivered as early as in December.”

    “The ECB delivered the most dovish policy signal possible while leaving its monetary stance unchanged at yesterday’s meeting. The euro is now likely to remain under downward pressure heading into the ECB’s next policy meeting on the 3rd December as the market increasingly discounts further policy easing in advance.”

    “The prospect of looser global liquidity conditions has helped to support commodity and emerging market currencies although their fate will depend more on the outlook for Fed policy, the US dollar, and weakening domestic growth momentum.”

    “As long as the Fed remains on course to begin raising rates, the relief for commodity and emerging market currencies will likely prove short-lived. Commodity and emerging market currencies have weakened sharply so far this year even as the ECB and BoJ have been aggressively easing policy clearly.”

    “The more dovish ECB policy announcement has also increased expectations that the BoJ could closely follow in their footsteps by providing a dovish surprise at their policy meeting on the 30th October which is weighing on the yen alongside the improvement in risk sentiment.”

    “Lowering the deposit rate would increase downside risks to our weaker euro forecasts as it could prompt a sharper decline by allowing yield spreads to widen further against the euro.”
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