© Ulrich Leuchtmann
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I suppose we will see a slightly weaker Euro, because of the ECB's tendency to expand its QE programme further. The ECB will most likely be disappointed by the inflation numbers, which should trigger some actions that are not fully priced in the Euro exchange rate at the moment. Therefore, in general I anticipate the common currency to get weaker against its major counterparts. Nevertheless, I do not expect some big movement, because I believe the ECB will only gradually increase the QE volume.
What will be the main drivers for the Euro during the same period?
Obviously the main driver is the ECB policy, because that is something which seems to be very much forecastable for long period. Moreover, the fact that the ECB will obviously think about increasing the QE volume is something which brings more volatility from this side of the equation. However, the general risk sentiment in global fundamental markets is also driving the Euro. We saw it before the Euro behaved more like a safe haven currency recently, when a rick version shocked up the currency market and the Euro got stronger.
Nevertheless, I believe this may change, since it is clear that the Central Bank is very concerned about what is going on in emerging markets and what is going on in China in particular. Therefore, if risk factors from this side abate, we will see most likely the ECB increasing its monetary policy and therefore the Euro might have flipped its sensitivity to global risk aversion. It has behaved like a safe haven currency in the recent months and recent quarter, but I believe it might behave differently from now.
What are your forecasts for EUR/USD and EUR/JPY for Q4 of 2015?
I think the EUR/USD will trade slightly lower than now on the range of 1.06-1.08, while the Japanese Yen still has some potential to go weaker, due to some disappointment regarding the inflation performance of Japan, especially the wage performance.Therefore, the new speculation above Bank of Japan is heading to become more active again and taking the next step might arise soon and this would keep the Yen under pressure. Thus, I suppose the 125 might be a sensible level for the EUR/JPY for the end of this year.