12.09.2014 - We recommend holding short positions on the euro
The price of euro has stabilized, but soon may continue downward movement. Today, we should not expect sharp price movements as investors will not rush to build up positions ahead of the weekend. At the moment, there is no reason to expect a change of the negative trend. On the other hand, there are a number of factors, which points to a further price decline of euro.
First of all reduction of EUR/USD will be contributed by the difference between the monetary policy of the Fed and the ECB. Also it is worth noting that the last easing of monetary policy when ECB's interest rates were reduced to -0.20% on deposits and to 0.05% for loans that have not yet taken into account in the prices. US macroeconomic indicators point to improving the situation in the country, and the weakness in the euro area economy and there is a high probability of further deterioration, also due to sanctions that were imposed against Russia. Traders are waiting for the Fed meeting which may indicate the timing of interest rate hikes, which will strengthen the dollar.
We recommend holding short positions on the euro with the closest target of 1.28 and forecast a decline to 1.25 in the medium term.