Back
28 Jan 2015
Trend for the euro is still down – Nomura
FXStreet (Barcelona) - Research Analysts at Nomura, revise their EUR/USD forecast, now anticipating that EUR/USD might head towards 1.05 by end-2015, as the trend could remain clearly down for the euro for the next several months as portfolio rebalancing starts to play out among eurozone investors.
Key Quotes
“We note that we don’t think valuation is yet an issue for the EUR short trade. In other words, we have not moved so far on the EUR TWI that there will be a strong force towards mean reversion.”
“To illustrate, different valuation metrics tell different and mixed stories. The real EUR TWI, the simplest metric of fair value, is now 9% below is average since the euro’s inception in 1999. Hence, it is arguably moderately undervalued. And models based on the current account position would tend to point towards undervaluation too. But this is not the case for all models. For example, we find that on a “wealth” adjusted PPP valuation model (using GDP weighted average of the different eurozone countries), we find that the euro is still around 5% overvalued.”
“In addition, there is no convincing evidence yet that eurozone exports are gaining global market share, although performance has bottomed.”
“Against the background of a very powerful signal from the ECB, ongoing portfolio outflows, and still not clear undervaluation, we think a target of 1.08 is now realistic for EURUSD this quarter.”
“In Q2, we could see a pause in the depreciation trend for EURUSD as the Fed has to communicate more patience relative to the mid-2015 timetable for lift-off.”
“For end-2015, we now think 1.05 is realistic, compared with 1.12 previously.”
Key Quotes
“We note that we don’t think valuation is yet an issue for the EUR short trade. In other words, we have not moved so far on the EUR TWI that there will be a strong force towards mean reversion.”
“To illustrate, different valuation metrics tell different and mixed stories. The real EUR TWI, the simplest metric of fair value, is now 9% below is average since the euro’s inception in 1999. Hence, it is arguably moderately undervalued. And models based on the current account position would tend to point towards undervaluation too. But this is not the case for all models. For example, we find that on a “wealth” adjusted PPP valuation model (using GDP weighted average of the different eurozone countries), we find that the euro is still around 5% overvalued.”
“In addition, there is no convincing evidence yet that eurozone exports are gaining global market share, although performance has bottomed.”
“Against the background of a very powerful signal from the ECB, ongoing portfolio outflows, and still not clear undervaluation, we think a target of 1.08 is now realistic for EURUSD this quarter.”
“In Q2, we could see a pause in the depreciation trend for EURUSD as the Fed has to communicate more patience relative to the mid-2015 timetable for lift-off.”
“For end-2015, we now think 1.05 is realistic, compared with 1.12 previously.”