Euro may be headed lower, but not just yet analysts say
Updated : 10:08
On longer timeframes (for technical analysts), Europe's single currency appears headed towards the 1.27 area on its cross against the US dollar, technical analysts at Web Financial Group say.
According to Jose Maria Rodriguez, WebFG's chief technical analyst, at present that area appeared to coincide with the upper part of the downward sloping price channel which had been in place since early 2008.
Of course, prices never move in a straight line, Rodriguez explained, but after breaching several areas of resistance on its monthly price graph, euro/dollar appeared headed to 1.27, although there was still one major level of technical resistance laying in its path - 1.2040.
That marked the currency pair's July 2012 lows which back then acted as 'support' but now had morphed into 'resistance' and might therefore offer at least temporary resistance, he said.
So what do the fundamentals (supposedly) say?
On a related note, on Wednesday strategists at Bank of America-Merrill Lynch revised their euro/dollar forecasts for 2017 from 1.08 to 1.15 and for 2018 from 1.15 to 1.19.
Having said that, they remained 'bearish' on the currency cross because it had 'overshot' and due to the asymmetric risks from central bank surprises.
In the extreme short-term, analysts at Unicredit Research were were wary of chasing the pair higher too.
Yet on a longer time horizon, they did see scope for further gains.
Relative nominal and real interest rate differentials were consistent with the view that the euro had overshot, they said, but it remained below its long-term 'fair value' level, which they put at 1.25.
"So it seems likely we may be entering a period of consolidation as investors decide to take a breather, interpret the ECB'S message on 7 September and reassess. In the medium term, we still expect some euro gains: although tapering of QE in the eurozone is very likely to be slow, the market is still in the midst of pricing-out the excessive USD bullishness that has been around since the beginning of 2015.
"As the process continues and the US political-risk premium remains elevated, currencies that were severely penalized against the USD to the end of 2016 (like the EUR) are likely to benefit further."