CIBC FX Strategy Research argues that the path for further EUR appreciation is now looking clearer mainly on the back of the reduced political risk which has seen the currency rally almost 3% since early April, and will also open the door for the ECB to further adjust its messaging at the upcoming June meeting.
In that regard, CIBC expects the ECB June meeting to conclude with the release of upwardly revised staff forecasts, which will be the backdrop for more bullish commentary from President Draghi. But, while that will support the strengthening trend in EUR, CIBC doesn’t expect Draghi to overplay his hand.
“Assuming market friendly outcomes in European elections this year, ECB policymakers could begin paring back the amount of monetary stimulus they’re currently pumping into the system, something that could create a stronger bid for the euro. That comes at a time when markets are already pricing in a significant probability that the Federal Reserve will hike rates twice more in 2017, leaving less support for the greenback from that channel,” CIBC adds.
“Our forecasted euro appreciation is gradual, coming on the back of measured changes in monetary policy and communications,” CIBC adds.
That, according to CIBC, should, propel EUR/USD to 1.12 by the end of September and to 1.14 by the end of 2017.
Source: CIBC Economics – CIBC Capital Markets
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