Focus FX Currency Forecast
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3 Februarie 2011 |
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RAIFFEISEN BANK S.A. |
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Website
www.raiffeisen.ro
EUR/USD: 1.371 - 1.30 (March)
Escalation of the political tensions in Egypt on Friday triggered some temporary pressure on EUR. Not so much because the euro area maintains particularly close relations with Egypt, but rather because the old pattern is still intact: rising risk aversion (international equity markets also suffered setbacks on Friday) tends to hurt EUR and help USD, CHF and JPY. With the rebound on the international equity markets, however, the euro recouped most of these losses versus USD. As the outcome of the protests in Egypt is still completely unclear and it cannot be ruled out that other countries will also be affected, there is still an acute risk of more surges in risk aversion and thus setbacks for EUR/USD over the short run. Nevertheless, we do not presume that any of the oil-rich Gulf States will be caught up in these developments.
The effect on the global economy and financial markets should thus remain modest, and hence we see no need to adjust our key forecasts. Even though volatility in EUR/USD will temporarily rise, we still believe that over the medium term it is more important what happens in relation to interest rates and the sovereign debt crisis. In respect of the latter, the euro has profited from some very promising developments in the EU in recent weeks, which have significantly increased the chances of preventive support measures (adaptation of the safety net, repurchase of PIGS bonds), with plans for finalisation at the EU summit in March. Accordingly, some of the increase in EUR/USD is quite justified. Furthermore, the euro is profiting from the sharp increase in expectations of interest rate hikes in the euro area, which we see as being exaggerated. Later during the year, when the market’s expectations of rate hikes by the ECB are weaker than expectations of US hikes, EUR should still weaken considerably against USD.
Trading Ideas
Note: This list contains only the strongest trading ideas for the markets that we cover. Therefore not every marketforecast that implies a buy recommendation is also listed as a trading idea! Trading ideas may also differ fromour quarterly forecasts, as the time horizon can be different. The time horizon of the trade is at least two weeks,but not more than 3 months.
