© Adam Cole
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I do not consider it to be a warning sign as if we look at the Euro's performance broadly, it is still tending to outperform. Thus, looking at anything other than the U.S Dollar, the general trend is still being on the strength of the Euro.
However, the recent performance of EUR/USD, in particular, seems to be clouded by the fact that the market is also being quite positive on the U.S Dollar, keeping the EUR/USD currency pair in quite a tight trading range. Eventually, we still consider that the Euro is performing fairly well against it major counterparts.
How do you evaluate overall performance of the Euro?
Overall, I assume that investors probably are surprised how robust performance of the Euro is. Many market participants have been expecting that the peripheral concerns will resume and the consensus was probably too negative for the Euro. However, I think that 17-nation currency's has shown quite positive performance. We expect it to pick out at the current levels with a moderately negative outlook going forward. Nevertheless, so far the surprise is being that the Euro sells up so well.
What would be the main factors that will determine future performance of the Euro bloc's currency?
To my mind, going forward the main facts to watch would be the performance of the banks in the periphery, in particular, where the risk of financial contagion continues to diminish and the banks have been outperforming, providing a support for the Euro. That I think would be equilibrium on their sentiment. Obviously, if that continues, it would stay a positive factor, while if we see any signs that the systemic risk in the periphery is beginning to rise again, that could turn the Euro trend to the negative side. In my opinion, that would be the key barometers to watch going forward.
What are your short and long term forecasts for EUR/AUD and EUR/USD?
In the short term we expect EUR/USD to stay roughly around the current levels, however in the long term, closer to the end of the year, the pair might trade down to the low on 20-ties. Thus, we will see underperformance versus generally positive U.S Dollar. With regards to EUR/AUD, we see general Euro outperformance, hence we have a shorter and longer target of around 1.50, which is based on our expectations, the Aussie continues to underperform as international investors continue to liquidate holding Australian bonds.