EUR/USD: Fairly constructive outlook for the near-term should see a modest EUR appreciation - CIBC

The EUR/USD pair is forecast to move higher over the next quarters, reaching 1.16 in Q4 and 1.20 in Q2 2020 according to analysts at CIBC. 

Key Quotes: 

“The June ECB meeting included adjustments that will reverberate through the economy for a considerable amount of time, impacting the options available to Draghi’s successor. At the conclusion of its June meeting, the Bank modified its guidance by indicating that it’s willing to cut rates in September, unless there is material improvement in economic data, thereby also ensuring that any hike would not come before Q2 2020.”

“Despite the Bank indicating that the domestic outlook is still constructive, we’ll continue to monitor it closely. Draghi maintained confidence that he was prepared to expand the toolkit once more if necessary, which should keep the EUR grounded – at least temporarily. However, there are additional reasons to expect the EUR rally to be measured rather than swift.”

“Long EURUSD trades remain costly both from a carry perspective and from a hedging perspective.”

“The options market is now skewed in favour of EUR calls, making topside EURUSD calls more expensive than before. There’s time for EURUSD to move higher, but it requires more than just an extension of cheap funding for domestic banks. What’s needed is outperformance of European data relative to the US.”