Above: EUR/USD quickly falling towards parity.
Following the dramatic announcement from the European Central Bank on 23rd January we consider the latest forecasts for the shared currency against the dollar.
With one trillion extra euro expected to be swimming around global financial markets in the next two years we consider where the shared currency's exchange rate will finally end up.
While the question of whether it will actually fix the economy is yet to be seen, it is our job to keep an eye on the forecasters as they try and gauge where the euro will end up.
All we know at this stage is that the impact on foreign exchange markets has been significant. At the time of writing we see:
- The euro to dollar exchange rate (EUR/USD) is quoted at 1.1269 at the time of writing.
- The euro to pound sterling exchange rate (EUR/GBP) is at 0.7503.
- The euro to Australian dollar exchange rate (EUR/AUD) is at 1.4234.
Quantitative Easing Engineered Meticulously
“Mario Draghi announced the European version of QE and it did not disappoint. Rather than provide a mealy mouthed effort, after a year of planning the ECB has delivered a program that should now define the shape of the European project for an extended period of time," notes Dawn Kendall at Investec Wealth & Investment.
Kendall goes on to say:
"With Germanic attention to detail, this plan has been engineered to within an inch of its life. Now, all eyes will be on the execution. Unlike the UK, US and Japan, the European Union is not homogeneous. In recent weeks, the big question overhanging the market was over risk-sharing and mutualisation. These issues have been addressed clearly and are universally positive."
The impact of the announcement was to pressure the EUR and support risk assets.
"Our revised call for EURUSD to push under parity before the year-end reflects our expectation of what the additional balance sheet expansion implies for the exchange rate alongside our call that the Fed can achieve rate lift off in H2 this year," says Shaun Osborne at TD Securities.
Commenting further on the outlook Osborne says:
"We had thought that EURUSD’s decline through the 1.21/1.22 support zone late last year heralded and extension of the broader, bear trend towards 1.12 (61.8% retracement of the 0.82/1.60 rally).
"The only thing that might slow the EUR decline from here (briefly) is a short-term corrective bounce in the next 1-2 big figures.
"EURUSD is down more than 10% in the past three months and 10-12% declines over three month periods since 1999 have frequently proven to be about as much of a move as can be sustained before a correction sets in outside of a major dislocation in markets (2008). Any near-term rebound would be merely corrective though and would represent a selling opportunity."