From UBS (Monday morning note). They note that with EUR/USD having fallen 1.2% since the ECB press conference last Thursday (May 8) “it’s worth asking how much further it can fall”.
Good question I reckon.
Their answer is “Considerably further, in our view”:
- They say they wouldn’t be surprised to see another four big figures of downside over the next four weeks
- “That would allow enough time for the market to digest the May flash CPI on June 3, the next ECB policy decision on June 5, and US non-farm payrolls on June 6″
And add:
- ECB’s policy rate corridor (depo, refi and marg rates) are likely to be shifted downwards by 15bp at the next policy meeting
- But even a milder form of easing (eg just a refi rate cut), could still inflict further heavy losses on the euro
- A depo rate (a key determinant of euro money market interest rates ever since the two 3year LTROs were conducted) cut on top of this would be even better for euro bears
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Adam noted earlier that Everyone is waiting for a EUR/USD bounce to sell
