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16 Mar 2015
ECB might adjust policy if EUR/USD falls below parity quickly – Nomura
FXStreet (Barcelona) - Jens Nordvig, Global FX Strategist at Nomura, believes that if EUR/USD falls down to 0.95-90 within 1-2 months, the possibility of ECB signalling towards some adjustment in policy exists, with chances of a fresh debate arising that the central bank might increase deposit rates back to positive territory.
Key Quotes
“In terms of forecasts, we had previously been targeting 1.08 for this quarter for EURUSD (and 1.05 by the time the Fed delivered its first hike), and we have already exceeded our Q1 estimate. We will revise near-term targets after the Fed has spoken on March 18.”
“But we note that if the Euro is to decline substantially, the move is likely to be concentrated in a much shorter timeframe than generally expected.”
“That is, it is very possible that we trade to a local low within 1-2 months, at which point the move will be so extended that it may trigger a policy response (either from the ECB or from the Fed, or even the G7).”
“Specifically, we think there is a high probability that the Fed will turn more dovish before the June 17 FOMC meeting, meaning that there will be a catalyst for some reversal before the end of the second quarter.”
“And on the ECB front, if we trade to 0.95 or 0.90 within 1-2 months, it is possible that some ECB Governing Council members will signal that some adjustment in policy is a possibility, including a debate about raising the deposit rate back toward positive, although actual policy adjustments will take longer.”
“Linked to this, we are not inclined to have a linear forecast path for EURUSD extending into 2016 and 2017. That is normally not how currencies work, and the speed of the recent adjustment suggests that the downtrend will ultimately become unsustainable within 3-6 months.”
Key Quotes
“In terms of forecasts, we had previously been targeting 1.08 for this quarter for EURUSD (and 1.05 by the time the Fed delivered its first hike), and we have already exceeded our Q1 estimate. We will revise near-term targets after the Fed has spoken on March 18.”
“But we note that if the Euro is to decline substantially, the move is likely to be concentrated in a much shorter timeframe than generally expected.”
“That is, it is very possible that we trade to a local low within 1-2 months, at which point the move will be so extended that it may trigger a policy response (either from the ECB or from the Fed, or even the G7).”
“Specifically, we think there is a high probability that the Fed will turn more dovish before the June 17 FOMC meeting, meaning that there will be a catalyst for some reversal before the end of the second quarter.”
“And on the ECB front, if we trade to 0.95 or 0.90 within 1-2 months, it is possible that some ECB Governing Council members will signal that some adjustment in policy is a possibility, including a debate about raising the deposit rate back toward positive, although actual policy adjustments will take longer.”
“Linked to this, we are not inclined to have a linear forecast path for EURUSD extending into 2016 and 2017. That is normally not how currencies work, and the speed of the recent adjustment suggests that the downtrend will ultimately become unsustainable within 3-6 months.”