A. Dudani, Currency Strategist at RBS, on the EUR/USD

Note: This section contains information in English only.
Source: Dukascopy Bank SA
© Ankita Dudani
The Euro dipped below $1.25 after Egan-Jones downgraded Spain's sovereign debt rating. Do you expect further decline below 1.24 level?

We do not think so, because the sentiment is not that negative. We believe the Euro decline going forward will become more of a grind rather than a lurch. Given how quickly things have moved now, we are looking for some short squeeze in the Euro.

What is your short term outlook for EUR/USD?

Hopefully, in the Q3 we will have some clarity out of Greece after the elections on 17 June. Currently the Greeks are favouring pro-bailout parties. Even if they do get a coalition government in place, focus will lie on whether Greece can deliver austerity already pledged to the TROIKA and other policy makers in Europe. Greece will obviously be of profound interest, as well as other big European countries such as Spain. Whether Spain is going to ask bailout from the ECB and other members is something that will dominate Eurozone within the next couple of quarters. Actually, these news have been in focus over the last two years.I think more importantly will be how the ECB will react to the growth outlook. There is going to be the ECB meeting next week, during which we will be focusing on whether the officials will acknowledge the slowdown not just in periphery but also in Germany, and whether they are ready to defend the interest rate floor and start delivering rate cut. I think obviously it really depends on how easy the ECB will be in acknowledging the growth outlook over still slightly sticky headline inflation.
Our EUR/USD forecast for the end of Q3 is 1.29 and for the 31 December is 1.33. The pair has a potential to increase. A lot will depend on how the US economy performs and whether the Fed move closer away from further easing.

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