ANZ with a rare euro-bearish call
ANZ Research discusses EUR/USD outlook and adopts a bearish bias over the medium-term.
"Sell EUR rallies as EA disinflation pressures grow. The ECB is clear that its policy options are not limited, but the persistence of negative interest rates does imply constraints. Whilst the US FOMC indicated it will cut interest rates to underpin the expansion if necessary, our assessment is that disinflation risks in the euro area are much greater," ANZ notes.
"The bund yield is at record lows, measures of inflation expectations have also made record lows recently and confidence that inflation will reach the ECB's target is fading. The factors underpinning euro area weakness are, to a large extent, external to monetary policy. They include trade tensions, auto industry difficulties, climate change targets and lingering fiscal risks. It is reasonable to argue that inflation expectations could converge on core inflation. Monetary conditions must therefore stay extremely accommodative.
We look for a test below 1.10 in EUR/USD in coming months," ANZ adds.
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