© Arne Lohmann Rasmussen
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After the Fed‘s comments concerning tapering of QE, the demand for the Dollar increased. Do you see this as a long term pressure on the Euro side or it is just a short-lived driver?
We actually believe that it is quite likely that the Dollar appreciation is not a result of the financial market stress, but actually due to the cyclical factors as that U.S. rate are increasing and there is a potential of QE tapering starting later this year. Moreover, we have a better growth outlook for the U.S. Hence, in our view the Dollar appreciation trend will continue for the next six to twelve months
What performance do you see for the Euro when the actual tapering takes place?
We think that the peak in EUR/USD that we saw in January, when we had a strong support to the EUR/USD from rising rates in the Eurozone, is behind us. We are also seeing now that those rates are increasing, but at the same time U.S. rates are moving higher. Thus, we do not think that support will return to the Euro in a significant weight. However, of course we should be aware that positioning is a bit stressed, as still there are a lot of long Dollar positions out there. From time to time we will probably see spikes higher in EUR/USD, but we would recommend selling on these spikes. Actually, we believe that this is a sort of a cyclical support to the Dollar at the moment.
Some analysts paint an optimistic outlook for the Eurozone for the second half of this year, as economy in many European countries is predicted to improve. Do you think it might be a strong driver for the Euro during the last two quarters of the year?
That is definitely a good argument for a support to the Euro, but we just think the case for stronger Dollar is more substantial at the moment. In fact, that is also why we do not see a significant move lower in EUR/USD towards 1.20 or 1.10 for the next three to six months, because there are mitigating factors that keep EUR/USD in a relatively narrow range at least for the next three to six months. Moving into the new year we will probably see the next dip lower in the cross.
What level do you think this currency pair might reach by the end of June?
I think there is still some downside risks left this week, and then the pair could probably touch 1.3050 or close to that level, just below 1.31. If the market stress that we are seeing at the moment intensifies, we could see a move back to the 1.30 level.