EUR/USD under pressure on two fronts - Commerzbank

By FXstreet.com | Updated July 25, 2014 AAA

FXStreet (Córdoba) - EUR/USD is under pressure on two fronts: from speculation about a turnaround in Fed policy whilst the ECB is becoming increasingly expansionary, according to Lutz Karpowitz, analyst at Commerzbank. The fact that the Fed and ECB are moving in opposite directions is putting increasing pressure on EUR/USD and this trend is likely to continue over the coming months, the analyst said.

Key Quotes

“EUR/USD is under pressure on two fronts. Onthe one hand USD is benefitting from the
US central bank’s increasingly apparent interest rate turnaround; on the other hand the ECB is becoming increasingly expansionary”.

“The fact that the Fed and ECB are moving in opposite directions is putting increasing pressure on EUR/USD and this trend is likely to continue over the coming months”.

“It would be ridiculous to claim that EUR/USD is nose-diving, but the cross has nonetheless been easing constantly since early July. As a result it is reflecting the general sentiment on the FX market quite well, as this is partially due to the general strength of the US dollar, which is no doubt fundamentally justified. At present markets are pricing in a rate rise for late July 2015, whereas we expect this to happen a little earlier. This is likely to support the greenback”.

“EUR weakness is as responsible for the fall in EUR/USD as USD strength. The ECB’s increasingly expansionary monetary policy is clearly putting mounting pressure on the euro. This is not likely to change any time soon either, as the ECB has little opportunity to pursue a more restrictive monetary policy”.

“As a result EUR/USD is likely to principally remain under pressure even if the fall will not necessarily gather momentum”.

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