There are three reasons an EUR/USD turnaround could come soon:
- The euro are has an open economy that stands to be benefit substantially from EURUSD being 12% lower now than what has been the average since 2008. The record low euro could lead to an export led economic recovery.
- Should the changes to euro area CPI from changes in EURUSD be to the ratio of 0.4% to 10% as mentioned last year by Mario Draghi, the low euro we now have should add 0.80% more to inflation than what was the case a year ago? Add to this that ECB’s printing machine now has started and that oil prices is higher than at the start of the year and Euro area CPI could quickly regain 1%+ of what was lost. Doubts will emerge to how long the QE will be needed and negative deposit rate might be history sooner than we think.
- Spring is approaching and seasonal employment will raise substantially in the south of Europe from tourism, which could be in for a cracking good year from the low euro. This comes on top of what other export industries will need of new employment. Euro area unemployment could drop below 11% quickly and possibly approach 10% by the end of the year.
The US economy is at the moment far stronger than what is the case for the euro area. But the high USD and prospect of higher interest rates could question the sustainability of the high US GDP growth rate.
In a few months there might only be the interest rate differentials favouring USD to the euro. And while this is a valuable argument in favour of a low EURUSD, the EURUSD might react more to the three reasons mentioned above.