EUR/USD: Headed to 1.31?
March 27, 2009
There is a good chance that the EUR/USD could be headed to 1.31. In my Daily Currency focus on FX360.com yesterday, I said that the currency pair is prime for a breakout. Now that it is happened, the prospect of a rate cut by the ECB coupled with the comments from the German Finance Minister yesterday could drive the EUR/USD lower. The market currently expects the ECB to bring interest rates down to 1 percent, which is pretty much the lowest that they will probably be willing to go. Once that happens, the question immediately becomes, What Next? Will the ECB embark on Quantitative Easing and if so how. We will address this topic next week.
Of the 51 economists surveyed by Bloomberg, all but 6 expect a 50bp rate cut. Of the 6, 4 expect only a quarter point cut and 2 expect no rate cut at all. I think the ECB will cut interest rates by 50bp but fail to hint about what comes next.
There are 5 reasons why the EUR/USD collapsed today which I talked about in detail in my feature on FX360.
1) Comments from German Finance Minister
2) ECB Expected to Cut Interest Rate
3) Global Reserve Currency Not a Topic at G20
4) Japanese Repatriation
5) U.S. Equity Futures Down
Posted in 2009 eurusd forecasts, ecb rate cut, eur/usd
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March 27th, 2009 at 4:56 pm
Isn’t Quantitative Easing hard to implement in Europe? Is it feasible with 16 member states?
March 28th, 2009 at 2:57 pm
Urgh… gotta pay closely to EUR/USD now…
March 28th, 2009 at 2:57 pm
I meant pay attention closely to EUR/USD.
March 29th, 2009 at 9:52 am
Kathy, after Angela Merkel’s comments yesterday and those of Spain and other Eurozone countries that they would not follow the US’s lead for more stimulus etc., isn’t it likely the Euro will actually regain its climb as it appears they will not spend/inflate their way out of this crisis in the way the US plans? Vis a vis the US currency it appears the eurozone countries will not devalue their currency.
March 30th, 2009 at 4:50 am
Pat,
It’s difficult to say it’s all speculation’s.
March 30th, 2009 at 11:31 am
Forex Guy-
Nassim Taleb (Fooled by Randomness, The Black Swan) would be proud of your response
Its why I like options- if you are unsure of direction, distance- options are a great way to trade FX.
You can even profit from little expected volatility: for example, I just closed a butterfly spread on $/CAD, profitable because it remained in the 1.22-1.28 range for a month or two.