domenica 24 marzo 2013

EUR Above 1.32 Or Below 1.25 In Q2?

Despite the turmoil in Cyprus, JP Morgan maintained its EUR/USD targets unchanged this month standing at 1.32 for Q2, and 1.34 for Q4 1.34.

Still, according to JPM, the downside risk to this view could probably take the EUR/USD below 1.25 if one or more of these 4 scenarios materialize: (1) Cyprus fails to agree a financing package, thus reviving talk of EMU exit; (2) Italy moves to elections again this spring due to failure to form a government; (3) Fed signals an early end to QE due to monthly payrolls gains above 200k and steady drop in unemployment rate; or (4) ECB cuts refi 50bp due to lingering recession.

The opposite upside risk to this view, according to JPM, could probably take the EUR/USD above 1.32 if one or more of these 3 scenarios materialize: (1) next Italian government announces a detailed reform agenda within the first 100 days; (2) Euro area PMIs composite reaches 52 this spring, signaling a robust upturn; (3) weekly LTRO repayments proceed quickly enough to imply less than 200bn of excess liquidity by year reducing extraordinary liquidity.

JPM also listed the following as potential trigger events: Cyprus negotiations with troika this month; Italian parliamentary negotiations; ECB meetings on Apr 4, May 2 & Jun 6; FOMC meetings on May 1, Jun 19.

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