EUR/USD: Not much lower for much longer – CIBC

Analysts at CIBC, consider the EUR/USD pair should start to climb in the coming quarters due to many strategic reasons. They forecast it will reach 1.14 during the second quarter of next year. 

Key Quotes: 

“EUR/USD has begun to base, owed to positive risk sentiment stemming from USChina trade negotiations and weakness on the USD leg-”

“Funds traditionally flow to USD during risk-off bouts, but recently, the options market has become uncertain about which leg is the safe haven play. This makes EUR/USD’s trajectory unclear in the event of a risk-off move in the near-term. On the trade front, the 5.8% decline in EUR/USD year-to-date implies that at least some of the US-EU trade hawkishness is priced in, though this still poses a risk in light of the recent WTO ruling.”

“Over the long-term, we look for EUR/USD to be well supported by its current account surplus. Although industrial production data, manufacturing PMIs and business sentiment remain weak, especially in the core German and French economies, we believe that the market has already largely priced that in.”

“Speculation of German fiscal stimulus should be EUR supportive, should the German economy deteriorate further.”

“During the September ECB meeting, there was disagreement among members with respect to restarting quantitative easing, suggesting that the Council as a whole was not as dovish as Draghi himself.”