Euro can drift to 1.25 or even lower: Nirmal Bang
Nirmal Bang has come out with its research note on EURUSD. According to the research firm, the strains from the entire Cyprus fiasco will enforce European banks to go even slower on the LTRO repayments.
April 04, 2013 / 16:33 IST
Nirmal Bang has come out with its research note on EURUSD. According to the research firm, the strains from the entire Cyprus fiasco will enforce European banks to go even slower on the LTRO repayments. Look forward to EURUSD drifting towards USD 1.25 or even lower in short-term, sais the research note.
A Dovish ECB = lower EURUSDAfter Bank of Japan (BoJ) delivered today by announcing an additional long-term assets purchase to the tune of 60-70 trillion Yen annually, it is time for European Central Bank (ECB) to address the recessionary and deflationary concerns in euro zone.In spite of the persistent macro weakness, ECB has kept the policy rate (main refinancing rate) unchanged at 0.75 percent in view of the improvement seen in financial conditions in euro zone. The ECB expected that the improving financial conditions will eventually pass on to the real economy in some sense. However, the thought has hardly materialized. The latest run of hard data do not reflect any improvement whatsoever in the economic conditions in the euro zone.The Yesterday's flash inflation estimate for March, for instance, dipped again to 1.7 percent on a year-over-year basis - a 31-month low. Meanwhile, the latest batch of manufacturing purchasing managers indices for the Euro zone, showed that output continued to contract last month even for stronger members namely Germany and France while unemployment in euro zone remained stuck at a high of 12 percent in the first two months of this year.Looking at these developments, we believe that the ECB can consider a shift in its stance. Given the ECB's history lately, we do not envisage a rate cut in today's policy announcement. However, it may just set the stage for a rate cut in the next meeting.A new dimension that reinforces our view emanates from Long-term Refinancing Operation (LTRO) repayments by European banks which began few weeks back in January 2013. Although the repayments kicked off in a big way, indicating an improvement in European banks' balance sheets, enthusiasm faded in no time as the repayments kept tapering off in subsequent weeks. Moving ahead, the strains from the entire Cyprus fiasco will enforce European banks to go even slower on the LTRO repayments.Broadly speaking, if our view materializes, the implications will be a weaker euro going forward which we believe will ultimately work in favor of the euro zone growth revival. We look forward to EURUSD drifting towards USD 1.25 or even lower in short-term.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
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