© Ulrich Leuchtmann
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We expect the Euro to be under moderate pressure during the third quarter, as the partial recovery of the common currency was mainly due to technical reasons, including positioning. In other words, surely the Euro zone economic data have been better than expected. However, the positive effect has been greatly amplified by the fact that market participants had held considerable Euro short positions in the past, and at the moment are covering them. Nevertheless, this action is not something that would keep the currency around the current level.
What will be the main drivers for the Euro during the same period?
Obviously, we are at the discussion about the Grexit probability; however, I believe that this deadlock is not influencing the Euro significantly. The European Central Bank owns several backstop mechanisms, including QE and OMT, which, in case of the Greece leaving the Euro zone, would prevent the systemic risk for the rest of the Euro area. As we look at the things from the short-term perspective, the common currency might experience some negative effects due to increased uncertainty regarding Greek crisis.
Otherwise, one must realize that there is some potential for the US Dollar in the times to come; therefore, this might show as a burden for the exchange rate. The market is expecting a very shallow Fed rate hike, which means some positive surprise potential for the Greenback could be experienced in the Q3, driving the EUR/USD down.
What are your forecasts for EUR/USD and EUR/JPY for Q3 of 2015?
By the end of the third quarter, we anticipate the shared currency would be trading around 1.06 against the US Dollar. We see the Euro trading lower versus the Japanese Yen than the current level, reaching 129 by the end of September. In my opinion, the Bank of Japan has realized that increasing QE is not the best solution in the long run and might not bring inflation rate up to 2%. Hence, they need new measure, and this could take quite a while.