Could the ECB Change Tack in 2018?
Although anticipating “both Fed tightening and a fiscal boost,” Canadian bank CIBC expects the “USD to maintain its structural downtrend in 2018.” As regards the US tax legislation, “unlike the Homeland Investment Act from 2004,” CIBC does “not expect the USD to benefit from sizeable repatriation flows,” expecting instead “a widening twin deficit, accompanied by a retreating USD yield advantage to underline a negative USD trend.” In particular, the Canadian firm feels the currency market is complacent as regards the policy stance of the BoJ.
CIBC envisages USDJPY down at 108 the end of the second quarter of 2018. At the same time, as regards the euro [EURUSD] CIBC expects “positive Eurozone fundamentals to soon be reflected in hawkish ECB language” and would not be surprised if “the Draghi mantra that rates will remain at current levels ‘well past’ the ending of net bond purchases” is not soon questioned.” While the Canadian bank thinks “EUR appreciation to be less pronounced than that seen since late April,” it is nevertheless pencilling in EURUSD at 1.2300 at the end of Q2 2018. Levels aside, perhaps what traders might find most interesting about the Canadian bank’s view is the way it’s view of the possible evolution of BoJ and ECB monetary policy settings are not arguably currently mainstream.
Written by Neal Kimberley, External Currency Analyst.