A New Year and the same old Euro. Our forecast for EUR/USD is 1.10 this year. I may alter that slightly as the year progresses as I feel it may go as low as 1.07 once it breaks the 1.10 support level. At the beginning of January we finally broke the 1.20 support level on EUR/USD and once we break 1.18 (2003 low) then as far as I’m concerned 1.10 is a foregone conclusion.
Perhaps a touch aggressive although as I’ve maintained for the past 12 months I don’t see any signs of a slowdown in US Dollar strength and with the uncanny ability to go from one disaster to the next the Eurozone shows no signs whatsoever of steadying a sinking ship.
Some of you may have watched the Bill Murray film Groundhog Day over Christmas. Writing about Greece provides the exact same feeling for me. The Shirley Bassey song sums it up nicely “History repeating”. It is back to a case of “will they won’t they” leave the Eurozone. Should a new Greek Government opt to leave then one renowned economics professor has said it will be “Lehmans” squared in terms of the impact on market.
Do I think Greece will be allowed to leave the Eurozone? Nope. Politicians, banking and Government officials will backtrack and bow to Greek demands and they’ll renegotiate their position. The same arguments/stories/fears of a Greek exit or the aptly coined term a ‘Grexit’ have resurfaced – run on Greek banks, contagion, investors speculating on who would be next to leave etc etc. Again, and I am sure I wrote this 5 or so years ago, Greece won’t be allowed to leave as it will prove the Eurozone and Euro project will have failed. It is bloody expensive to keep the Eurozone and all its problems together however it could be catastrophically expensive to disband. No doubt the saga will rumble on for the coming weeks. However, should Greece leave the Eurozone then your guess is as good as mine on what that might mean for the Euro. Parity on EUR/USD?
Let’s put Greece to one side for now. I have said I expect EUR/USD to go to 1.10 this year.
GBP/EUR? I expect this to break 1.30 and trade at a high of between 1.32 and 1.34 this year.
Fundamental reasons for EUR weakness this year other than Greek and political uncertainty –
· Weak growth
· Low inflation
· Expected Quantitative Easing
· Further Dovish comments from Mario Draghi
I don’t expect GBP/EUR to come off much this year. I expect it to be fairly range bound between 1.26-1.30 this year. I expect a slight cooling in the UK recovery so I don’t see any strong gains for Sterling this year hence my thoughts that GBP/EUR will edge up gradually. This will mainly be on the back of EUR weakness. Of course, we will have intraday spikes and dips on economic releases although I see a gradual upside trend continuing for GBP/EUR.
GBP/USD? As you’re probably all bored of hearing by now I’ll keep it short. I see the downtrend continuing for Cable. If you are a US Dollar buyer please contact myself or one of the trading team to discuss strategies for the year ahead.
You will need to mitigate your currency risk. If we drop from where we are now to 1.45 what will that do to your bottom line?
Predictions for the year -
GBP/EUR – 1.32
GBP/USD – 1.45
EUR/USD – 1.10
If you have any questions please let me know.
Have a great week.
Written by Liam Alexander