Wednesday, August 1, 2012
Analysts at JP Morgan try to clarify the load of information and different factors we have in the euro area by distinguishing scenarios of euro’s potential future moves.
According to the specialists, one may expect EUR/USD trading up and down around $1.2000 as the ECB and the Federal Reserve act.
Down
If the crisis in Europe escalates, EUR/USD will slide below $1.2000. The key elements of this scenario are: discussions of Greece’s exit from the EMU, Italy and/or Spain losing access to the debt markets, failure of Greek government, the end of Greece’s financing program if EU doesn’t reach consensus with Greek government, the rejection of ESM by German Constitutional Court, the election of anti-EMU party in the Netherlands.
Up
If the situation improves, EUR/USD will be able to return above $1.2500 in Q3. The key elements of this scenario are: the launch ofQE3 by the Fed, the signal from EU parliaments about their intention to fast-track banking union and transfer costs of Spanish bank recapitalization to the region, the ECB’s restart of direct bond purchases or granting ESM a banking license with a higher lending ceiling, the focus on US fiscal cliff and the concerns about sovereign rating in run-up to US Presidential election.
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