The Euro has gone through a sharp decline in the first half of the Year, dropping from 1.50 area in December to 4-year low prices below 1.19, however, according to the Deutsche Bank FX research team, the pair could depreciate further since it has not reached "cheap levels" yet.
The bank observes the pair on a long-term bearish trend, which could extend to 1.2000 over the next three months, and to 1.1000 area in 12 months time.
There are important reasons to think that the EUR/USD has not reached cheap levels yet, says the Deutsche Bank FX research team: "It cannot yet be considered cheap on an absolute basis. We estimate purchasing power parity against USD at around 1.15~1.20, i.e. near current levels. Moreover there is a historical memory that the common currency started life around 1.18."
Furthermore, the Deutsche Bank's FX research observes interest rate differentials between US and the EU about to increase in the mid term, which will play against the European currency: "While the US is not likely to raise rates any time soon, it’s probably going to do so before the ECB does, in our view."
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