Focus FX Currency Forecast
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5 Octombrie 2011 |
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RAIFFEISEN BANK S.A. |
Adresa
Piaţa Charles de Gaulle, Nr. 15
011857 Bucureşti, Sector 1
Telefon
+40-21-306.10.00
+40-21-306.15.54
Fax
+40-21-230.07.00
Website
www.raiffeisen.ro
EUR/USD
EUR/USD: 1.321 - 1.30 (DECEMBER)
The decline in EUR/USD accelerated massively in the last few days, which is hardly surprising in light of all the bad news for EUR and good news for USD: on the one hand, there is still a possibility of a default by Greece, and releasing the next tranche of aid for Greece was postponed once again (until November). At the same time, the sovereign debt crisis is generating more and more strains in the European banking system (the latest rumours about the financing problems of the large bank Dexia are just another example of this), and consequently further rapid deterioration in the Eurozone’s economic outlook is foreseeable (the manufacturing PMI is now at just 48.5 and we are projecting a recession in the Eurozone in the quarters to come, cf. our latest quarterly publication “Strategy Global Markets”). On the other hand, the manufacturing ISM index in the USA (which is comparable with the PMI in terms of its explanatory power and scale) is rising and even managed to bounce back to 51.6 points yesterday, which is well above recession levels.
This morning, EUR consequently hit the lowest rate since the beginning of the year, as EUR/USD fell to 1.315. Our target of 1.30 for Q4 has thus almost been reached. As long as no credible solution to the Eurozone’s sovereign debt crisis is unveiled, EUR/USD will continue to probe the depths, with EUR exposed to further depreciation particularly on baddays for equity markets ( = rising risk aversion). Accordingly, EUR/USD will most likely dip well below 1.30 by year-end. Any brief rebounds for EUR/USD (mostly to be expected on days with rising stock markets) would thus present a selling opportunity for the euro. Data for this week (cf. the market outlook from Friday): while we do not expect a rate cut by the ECB on Thursday, there may be a significant expansion of liquidity (12-month liquidity operations, perhaps purchases of covered bonds?). If the rate cut that many are anticipating fails to materialise, the positive effect of these measures for the euro may remain limited. Looking ahead to Friday, we are more optimistic than consensus about the US labour market report, which should be beneficial for USD.
