Here's a precision call, laying out the path for EUR/USD
Erste Group expects EUR/USD to drop in the coming months to parity or lower levels, before staging a strong rally to 1.20-1.25.
"Utterances of ECB and Fed members point to monetary policy divergence between the US and the EMU over the coming months. The Fed is hinting at a rate hike in September or December whereas the ECB wants to ease its policy if monetary conditions tighten further," Erste argues.
"We think the Fed will raise the lending rate later this year and that it will continue to tighten its policy in 2016 as the US economy picks up. After all, the Fed wants to normalise interest rates as soon as possible. This will have a positive impact on the dollar," Erste projects.
"The euro is likely to remain under downward pressure due to ultra loose ECB policy and the expectation of rising Eurozone tensions later this year/early next year," Erte argues.
"However, the pair is unlikely to fall through 0.90 as this would point to an overly strong dollar. Later this year, a switch to risk-off on the prospect of less accommodative monetary policy around the world could force the Fed to tread cautiously when it comes to increasing interest rates," Ertse adds.
"In a risk-off environment, investors will tend to liquidate risky positions. Therefore, many euro-funded carry trades could unwind, which will increase euro demand to a substantial extent, albeit temporarily. Subsequently, EUR/USD could rally to 1.20-1.25," Erste projects.
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Righto, then
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