From the FXWW Chatroom: The failure of the US Senate to agree on a healthcare plan, despite months of discussion and preparation, has led to an across-the-board continuation of the USD weakness theme. It’s ironic for us to see this take EURUSD above our long-held 1.15 target as the original catalyst for turning bullish the pair in late March was the failure of the US House to manage a vote on the same issue.
In this context, and taking into consideration the wide range of technical breaks to new highs against the greenback by multiple currencies, we acknowledge that the odds are rising that we will have to revise our key forecasts once again in a USD-negative direction. Clearly soft US output and inflation data seen of late only add to reasons for USD weakness. The weak USD trend is further encouraged by the propensity of many other key central banks to either become increasingly hawkish (the Bank of Canada the best recent example), give clear signals that it is on that path (the ECB) or have sufficiently positive fundamentals to be seen as a suspiciously likely candidate for a hawkish tilt (the RBA).
As far as the ECB is concerned, a key reason why we are not immediately reviewing our EURUSD forecast now our 1.15 target has been breached is that we want to see whether the central bank makes any attempt at all to slow the currency’s progress at its meeting this week. Clearly a direct reference to FX strength as an issue and as a threat in the introductory statement would be the most powerful (and probably least likely) way to do this. But considering how long the EUR rally has been in play and the fact that the shorter-term market is likely long, it may be sufficient for ECB chief Draghi to reference currency strength as a factor for consideration to allow a correction.
In this context, and taking into consideration the wide range of technical breaks to new highs against the greenback by multiple currencies, we acknowledge that the odds are rising that we will have to revise our key forecasts once again in a USD-negative direction. Clearly soft US output and inflation data seen of late only add to reasons for USD weakness. The weak USD trend is further encouraged by the propensity of many other key central banks to either become increasingly hawkish (the Bank of Canada the best recent example), give clear signals that it is on that path (the ECB) or have sufficiently positive fundamentals to be seen as a suspiciously likely candidate for a hawkish tilt (the RBA).
As far as the ECB is concerned, a key reason why we are not immediately reviewing our EURUSD forecast now our 1.15 target has been breached is that we want to see whether the central bank makes any attempt at all to slow the currency’s progress at its meeting this week. Clearly a direct reference to FX strength as an issue and as a threat in the introductory statement would be the most powerful (and probably least likely) way to do this. But considering how long the EUR rally has been in play and the fact that the shorter-term market is likely long, it may be sufficient for ECB chief Draghi to reference currency strength as a factor for consideration to allow a correction.