Economists at HSBC expect the Euro to appreciate in the coming weeks. Barring exceptionally hawkish US data or geopolitical deterioration, we believe EUR/USD could stage a modest recovery in the coming few weeks. The EUR has been slow to capitalise on the combination of an improving growth/inflation mix alongside a still-hawkish ECB. It may be better placed to gain as upward USD momentum falters.
EUR could benefit from a clear indication of further tightening
For the ECB meeting on 16 March, the key for the EUR is how President Lagarde guides expectations for the May meeting and beyond. Any strong hints that the tightening pace is set to slow to 25 bps could weigh on the EUR. Conversely, the EUR could benefit from a clear indication of further tightening. The balance of risks may tip the needle in favour of the EUR.
In the view of UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang, EUR/USD is expected to navigate within the 1.0530-1.0700 range in the next few weeks.
Our expectations for EUR to advance further was incorrect it dropped to a low of 1.0574. While there is scope for EUR to weaken further, any decline is likely part of a lower trading range of 1.0565/1.0655. To look at it another way, a sustained drop below 1.0565 is unlikely. We indicated yesterday (02 Mar, spot at 1.0665) that EUR rebound further but a sustained rise above 1.0750 is not high. We did not expect the rapid manner in which EUR gave up most of its gains from the previous day. Instead of rebounding further, EUR is likely to consolidate and trade between 1.0530 and 1.0700 for now.
