Euro forecasted to weaken by Barclays as ECB seen to engage in 'more meaningful' easing - EUR/AUD outlook downgraded

Details

Category: Australian Dollar News

Written by Sam Coventry

International Money Transfers at our sister site

"Because of the likely ECB easing, we expect the EUR to weaken, lending support to global risk sentiment to some extent" - Barclays.

The euro (Currency:EUR) is forecasted to weaken further by analysts at Barclays who have suggested the ECB is likely to act in a market-moving manner:

"Markets seem to be pricing a more meaningful ECB easing at tomorrow's policy meeting than expected by the analysts' consensus. This is more in line with our expectation of a 50bp cut in the repo rate and a near 25bp reduction of the ECB deposit rate."



At 10:20 AM in London the euro dollar exchange rate is 0.17pct down on a day-to-day basis at 1.2587, the euro pound exchange rate is 0.04 pct down at 0.8039 and the euro Australian dollar exchange rate is 0.16 pct lower at 1.2236.

(Our IMT currency forecast page has been updated, this Facebook entry path will allow you access and ensure you are updated to any changes).

"Because of the likely ECB easing, we expect the EUR to weaken, lending support to global risk sentiment to some extent. This is not the pattern suggested by FX option-implied correlations. We therefore suggest that investors position ahead of the event by selling EUR, but against relatively risky assets ," say Barclays.

Broadening our scope of the FX markets we see that most G10 currencies were largely rangebound versus the USD yesterday.

With little data out today and the US on holiday, FX and equity price action has been tepid.

Australian dollar forecasted to gain against the euro

Commenting on the outlook for the euro against the Australian dollar and Japanese Yen are Barclays analysts Paul Robinson and Raghav Subbarao:

"We expect the EUR to weaken further over the coming months, driven, to a large extent, by ECB policy. But a weaker EUR due to looser ECB monetary policy is not the same as one which is driven by capital flight and a higher risk premium. It is likely to be associated with very different moves in global risk appetite.

"Looser ECB policy, coupled with somewhat reduced banking sector risk following last week's EU summit decisions, should support global risk, and, therefore, be good for the AUD but bad for the JPY. In addition, other factors are pointing in the same direction for both currencies. Our forecasts are consistent with this: we forecast EUR/AUD to depreciate to 1.19 in 3m and EUR/JPY to appreciate 103 over the same period."