The rocky ride ahead for the euro

6th March 2015 By: Ranko Berich

The outlook for the euro – 06/03/15

The fall in the euro over the last couple of weeks has been nothing short of a collapse, with both EURUSD and EURGBP plumbing multiyear lows. A powerful confluence of factors has contributed to the euro’s demise – monetary easing from the ECB, political uncertainty and a rampant US dollar that has laid the euro’s weaknesses bare.

Looking ahead to this week, a relatively slow week of data releases mean that all eyes will turn to the initial impacts of the ECB’s quantitative easing program. The ECB has promised 60 billion euros per month of asset purchases, consisting of bonds issued by government large European institutions and yields look set to fall further across the eurozone as a result.

Draghi was explicitly clear about just how low yields could go: the ECB will shop to its heart’s content as long as bond yields remained above the ECB’s negative deposit rates. This means there is a range of assets whose yields look set to plummet further, and the euro is likely to follow suit.

Oil prices remain a wild card and reports of chronic oversupply in the North American market continue. If crude falls sharply again the dollar could strengthen even further as a result and compound the effects of the ECB’s QE. Should oil prices plummet while eurozone yields fall, EURUSD could be in for a rocky ride indeed.