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May 24 - 09:55 AM

EUR: Investors' Outlook On EUR/USD Remains Divergent - Credit Agricole

By eFXdata  —  May 24 - 09:05 AM

Investors are uncertain about the outlook for the EUR/USD pair, according to recent client discussions held by Credit Agricole. The bank notes that while there is uncertainty surrounding the USD due to risks associated with the US debt ceiling and the Federal Reserve's direction, views on the euro also diverge.

On the positive side for the EUR, the European Central Bank's (ECB) hawkish stance could continue to enhance the currency's interest rate appeal. Furthermore, the resilience of southern European economies is helping to stabilize the Eurozone periphery, another positive factor for the EUR.

However, there are several negatives weighing on the EUR's outlook. First, the expected shift in the ECB's tightening policy from rate hikes to quantitative tightening (QT) might unsettle the Eurozone periphery and limit the EUR's rate appeal. Second, although the Eurozone services sector appears resilient, the struggling manufacturing sector adds downside risks to growth and raises concerns that EUR purchases by exporters might decrease. Finally, the weak outlook for the German economy, traditionally the Eurozone’s growth engine, could add to the cyclical headwinds for the EUR. These factors contribute to the market's diverging views on the EUR/USD outlook.

Crédit Agricole Research/Market Commentary


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