BNP Paribas: EUR/USD to fall to 1.08

ECB unchanged, EURUSD outlook still bearish to 1.08

The ECB left monetary policy unchanged, disappointing expectations for an extension of the QE program beyond its currently scheduled March end time. Still, the outlook for EURUSD is still bearish towards our end ’16 target 0f 1.08. President Mario Draghi stressed that risks to economic growth lie to the downside but that, for the time being, changes to the ECB’s growth and inflation forecasts are not large enough to warrant more easing. However, our economists view today’s decision as a postponement rather than a rejection of further easing with new announcements likely soon, most probably at the December ECB meeting after a full evaluation of the options available. Overall, disappointment at the lack of an ECB policy adjustment has only been worth about 2bp on the EUR 2y swap rate.  Our 2-year real-yield analysis signals a clear downward bias having shifted markedly over recent months (chart). Hawkish comments from key members of the Federal Reserve could move US front-end yields by several times that amount very quickly. We forecast a fall in EURUSD to 1.08 by the end of the year,

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