EUR: Pushback from the hawks?
One of the hottest stories right now is that traders are pricing in, for next year, more rate cuts from the European Central Bank than the Federal Reserve. And traders are pricing in twice the rate cuts for the ECB than the Bank of England next year. We think that the pricing of the ECB cycle is far too aggressive and our forecast is for 75bp of cuts starting in June - rather than the 125bp cuts starting in March/April. We hear from ECB arch-hawk Robert Holzman this morning. Let's see whether he can move markets.
Given that extreme pricing of the ECB curve, it may then be that EUR/USD does not need to fall too much further. 1.07 is currently our year-end forecast - largely because our team felt US data could hold up in the fourth quarter. But let's see what tomorrow's US jobs report and next week's Fed and ECB meetings have to say on the matter.
We see EUR/USD holding support at 1.0730 today.
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