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How do you evaluate the performance of the Euro during the Q1 of 2016 and what will be the major drivers for the Euro throughout the same period?
Our current outlook is that the Euro will come under renewed depreciation pressure during the first quarter of this year as the economy as well as inflation in the Euro zone continue to disappoint, which will spur speculation about further monetary policy easing by the ECB.
In our economists view, the ECB's projection for core inflation particularly remains too optimistic and thus is subject to downward revision.
However, we do not expect the Euro to come under as much pressure as it did over the last quarter, as the market has learned, following the December European Central Bank's meeting, that the majority in the ECB Council is reluctant to implement further aggressive monetary easing (i.e. an increase of the monthly QE volume).
In our opinion, only another modest cut of the deposit rate (about 10 bps) is in the cards, which will put only moderate pressure on the Euro by the end of the first quarter of 2016.
What are your forecasts for EUR/USD, EUR/GBP and USD/JPY for the Q1 of 2016?
By the end of the first quarter of 2016 we anticipate the shared currency to trade at around 1.06 against the US Dollar, while the USD/JPY currency pair we see at 135. As for the Sterling, we expect the level of 0.71 in the Q1.