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10 Dec 2014
EUR/USD: Short for a 1.15 target - BNP
FXStreet (Bali) - As part of their Top trades for 2015, BNP is recommending to short the EUR/USD for a final target of 1.15 as the policy divergence theme expands.
Key Quotes
"The policy divergence theme that drove EURUSD lower in 2014 should persist in 2015, as the start of the Fed’s policy tightening in June contrasts with an ongoing balance sheet expansion by the ECB."
"We expect real rate differentials to remain a useful framework for capturing the currency (FX) impact of both conventional and unconventional central bank policies."
"Specifically, we think that higher US nominal rates and higher Eurozone inflation expectations will do most of the heavy lifting in moving the real rate differential against the EUR and in favour of the USD."
"Our rates strategists’ forecasts imply a widening of 2y nominal rate differentials by 125bp. If the ECB is successful at pushing eurozone inflation expectations higher, real rates should move even more (closer to 200bp), suggesting that the risk is for an even weaker EURUSD than we are currently forecasting."
Key Quotes
"The policy divergence theme that drove EURUSD lower in 2014 should persist in 2015, as the start of the Fed’s policy tightening in June contrasts with an ongoing balance sheet expansion by the ECB."
"We expect real rate differentials to remain a useful framework for capturing the currency (FX) impact of both conventional and unconventional central bank policies."
"Specifically, we think that higher US nominal rates and higher Eurozone inflation expectations will do most of the heavy lifting in moving the real rate differential against the EUR and in favour of the USD."
"Our rates strategists’ forecasts imply a widening of 2y nominal rate differentials by 125bp. If the ECB is successful at pushing eurozone inflation expectations higher, real rates should move even more (closer to 200bp), suggesting that the risk is for an even weaker EURUSD than we are currently forecasting."