Sturdy progress of EUR USD
11/1/2015 9:23:46 AM
Analysts anticipate EUR/USD to stay in a range with a descendent bias in the temporary and a stronger EUR over the medium term. The market was took the incorrect side of EUR/USD last month, with dissatisfaction over the scale of the ECB’s stimulus announcement trumping the widely predicted 25bp increase in US interest rates. As a result, the EUR staged a strong pre-Christmas rally, from a low close to 1.05 to above 1.10. Though dropping oil prices have contributed to an improving EUR area economy, the related weakness of inflation has fanned speculation of additional ECB stimulus. Near term, we expect the EUR to endure caught in a range with a sliding bias. The possibility of a US rate rise in March and the weakness of EUR area inflation are likely to be key drivers. Over the average term, though, we anticipate EUR/USD to present a strong progress, supported by a sustained tapering in the gap between US and EUR area progress. That said, the EUR is unlikely to make any constant progress until inflation turns higher and/or an end to more policy stimulus is in sight.