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Apr 02 - 10:55 AM

Credit Agricole: EUR/USD Heading Towards 1.05 on Renewed ECB-Fed Policy Divergence

By eFXdata  —  Apr 02 - 10:02 AM

Synopsis:

Credit Agricole forecasts a downward trajectory for EUR/USD, targeting 1.05 by Q4 2024. The prediction is driven by an emerging policy divergence between a dovish European Central Bank (ECB) and a more cautious Federal Reserve. The firm expects the upcoming April ECB meeting to potentially exacerbate the pair's downward pressure, particularly if ECB President Christine Lagarde hints at a June rate cut and further easing measures.

Key Points:

  • USD Strength: The USD's robust performance in early 2024 has already brought EUR/USD close to its lowest levels for the year, aligning with Credit Agricole's Q1 prediction of 1.08 for the pair.

  • ECB-Fed Policy Divergence: The anticipated dovish turn by the ECB, contrasted with the Fed's conservative stance, is central to Credit Agricole's bearish outlook on EUR/USD. The bank posits that an explicit signal of rate cuts from the ECB, starting with a potential June adjustment, could further fuel the pair's decline.

  • April ECB Meeting: A pivotal event, where Lagarde's comments could signal upcoming rate cuts, underscoring the ECB's dovish policy direction. This meeting's outcome may accentuate the policy divergence narrative and impact EUR/USD's value.

Conclusion:

Credit Agricole anticipates EUR/USD will decline towards 1.05 in Q4 2024, primarily due to the widening gap in monetary policy approaches between the ECB and the Fed. The imminent April ECB meeting is highlighted as a potential catalyst for accelerating the pair's downward movement, especially if it sets the stage for a June rate cut and hints at further easing ahead. This bearish stance on EUR/USD underscores the significance of central bank policies in shaping currency market dynamics.

Source:
Crédit Agricole Research/Market Commentary

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