© Carolin Hecht
|
We do not consider this outcome to be realistic. The previous bailout package for peripheral countries like Greece, Portugal and Ireland has mainly conveyed that the Eurozone is willing to stay intact. We consider the Eurozone breakup risk to be very minimal as the ECB with its OMT announcement still has its effect on keeping the market calm.
In your opinion, what key events in the nearest future would determine the performance of EUR/USD?
The last ECB meeting has raised uncertainty regarding the Eurozone's economic outlook as Mario Draghi, the ECB President, claimed that downside risks to the economy had increased and will remain elevated also in the second half of this year. Therefore, there might be additional measures taken by the ECB in order to ease monetary policy further, should the economic outlook deteriorate. Apart from ‘traditional' rate cuts the ECB could consider other unconventional measures – the design of which remains still unclear though.
On the political front, the formation of a stable governing coalition in Italy remains key in order to ensure the necessary implementation of further reforms and restore investor confidence. Furthermore, once capital controls in Cyprus are lifted the country might need additional funds from Eurozone countries in order to combat capital outflows. Additionally, Portugal could opt for another rescue package in autumn. Overall, the remainder of this year provides a lot of obstacles for the euro – both from the political as well as the economic front.
What is your short term and long term outlook for EUR/USD?
Our forecast for EUR/USD lies within the 1.31-1.32 region for the short term, as we still have the Fed pursuing its QE3 programme and being more expansionary than the ECB at present. In the longer term, we consider the range of downside risks for the EUR to outweigh U.S. Dollar risks though. The U.S. Dollar is likely to gain on the back of moderate growth this year and the possible end of the QE3 if not at the end of this year, then in Q1 or Q2 of 2014. The prospect of an exit from QE3 should support the greenback and implies EUR/USD edging lower from current levels. Our target for the end of 2013 is 1.28.