Mar 14 2016
Next week 112.00 –114.50
Next 3 months 107.00 - 115.00
The below is a topic from market news
Euro bears get sore heads as ECB sparks surprise rally
If the European Central Bank's latest monetary easing salvo was a surprise in its intensity, then so was the seemingly perverse rise of the euro in response - a move that's left the most bearish currency forecasters scratching their heads.
The euro rallied to its highest in almost a month against the dollar, surging as much as four cents at one point, confounding those who had bet negative interest rates and billions of euros of extra stimulus would send it lower.
This has echoes of the yen's surge since the Bank of Japan's surprise move to negative interest rates on bank deposits in January and raises questions over the effectiveness of central bank stimulus, no matter how aggressive or surprising it may be.
It wasnt supposed to be this way. A year ago most of the banking worlds major players were calling for the euro to fall to parity or lower against the dollar. The consensus in the latest Reuters poll earlier in March was still for the euro to fall over the coming year.
Negative interest rates and bond yields were supposed to drive the euro zones huge savings pool overseas in search of higher returns, thus weakening the euro. Deutsche Bank analysts dubbed this their "euro glut" theory and said the euro could fall to $0.85 by the end of next year.
One explanation for the apparently perverse euro move is that the ECBs measures on Thursday werent aimed at lowering the exchange rate specifically, but at boosting bank lending and getting liquidity flowing through the corporate world.
In theory, this would support growth, economic activity and demand, thereby lifting inflation and inflation expectations. In effect, the transmission of monetary policy would come via the banking system, not from debasing the currency and hoping for an export-led recovery.
That said, a weaker euro would lift imported inflation and counter the deflationary impact of plummeting dollar-based oil and commodity prices. Yet ECB President Mario Draghi steered clear of "talking down" the euro in his press conference and crucially said he didn't anticipate having to reduce rates further, which the FX market also jumped on.
