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22 Apr 2016
EUR/USD: on the way to below 1.1000 - BTMU
Analysts at Bank of Tokyo Mitsubishi explained that ECB President Draghi’s press conference and Q&A did initially spark some EUR/USD buying, perhaps in response to a degree of optimism expressed by Draghi over the stance of the ECB working and calling for patience.
Key Quotes:
"This would suggest nothing on the horizon in regard to additional monetary easing. But we doubt very much that EUR/USD direction will be determined by the stance of the ECB.
The key will be the stance of the Fed and shifts in that stance over the coming months have a much greater potential to fuel EUR/USD moves. In that regard, we are not surprised that the impact of today’s ECB press conference on lifting EUR/USD subsided very quickly and will give way to a more important influence which will be expectations on Fed policy.
Next week, we have the FOMC meeting and statement and while we don’t expect that to be a trigger for US dollar buying, we suspect the risk is that the statement shows a greater number of dissents or a greater degree of hawkishness than expected perhaps.
But US yields are drifting higher and we expect the data in May for April to show further improvement (Easter appears to have given some data a weaker tone in March). President Draghi today stated that he expects the ECB stance to continue to diverge from other regions and that scenario seems most likely to us – but only once US rate expectations start to rise again.
Even already though, the 2-year swap spread points to EUR/USD being back below the 1.1000 level rather than breaking above the 1.1500 level that we have heard today’s press conference has paved the way for."
Key Quotes:
"This would suggest nothing on the horizon in regard to additional monetary easing. But we doubt very much that EUR/USD direction will be determined by the stance of the ECB.
The key will be the stance of the Fed and shifts in that stance over the coming months have a much greater potential to fuel EUR/USD moves. In that regard, we are not surprised that the impact of today’s ECB press conference on lifting EUR/USD subsided very quickly and will give way to a more important influence which will be expectations on Fed policy.
Next week, we have the FOMC meeting and statement and while we don’t expect that to be a trigger for US dollar buying, we suspect the risk is that the statement shows a greater number of dissents or a greater degree of hawkishness than expected perhaps.
But US yields are drifting higher and we expect the data in May for April to show further improvement (Easter appears to have given some data a weaker tone in March). President Draghi today stated that he expects the ECB stance to continue to diverge from other regions and that scenario seems most likely to us – but only once US rate expectations start to rise again.
Even already though, the 2-year swap spread points to EUR/USD being back below the 1.1000 level rather than breaking above the 1.1500 level that we have heard today’s press conference has paved the way for."