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EURUSD to move higher post lift-off with 1.20 in sight – HSBC

FXStreet (Delhi) – Research Team at HSBC, suggest that the ECB’s lack of policy options alongside our outlook for a weaker USD after the Fed starts hiking rates will see EUR-USD move higher and we now see EUR-USD at 1.20 by the end of 2016 from 1.10 before.

Key Quotes

In our eyes, levels above 1.15 on EUR-USD are enough to prompt some soft push-back from the ECB, and the recent behaviour suggests that a move heading above 1.20 could trigger real concern at the ECB.”

“We believe there is excessive optimism on the USD, especially against G10 currencies. Having seen the end of the USD bull-run against developed market currencies, we could now be on the cusp of a weakening USD trend. The upcoming US tightening cycle could be unconventionally brief, confounding USD bulls relying on the US Federal Reserve to deliver a more aggressive series of rate hikes than is currently priced in.”

“Fed will not deliver to their hawkish dots and that the rate cycle – if it ever gets going – will be shallow and short. The ECB on the other side will not be able to be super dovish. Thus as the market adjusts to a not so hawkish Fed and a constrained ECB the EUR will adjust upwards.”

“We had thought the USD would have a last hurrah against DM. However, this is looking increasingly unlikely. Even with the market starting to think the ECB will deliver another round of QE the EUR is still trading above 1.10. We believe once the market comes to terms with the lower and shorter cycle in the US coupled with the constraints on the ECB, EUR-USD will head upwards. Hence we are now looking for EUR-USD to hit 1.20 by end 2016.”

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