Asset Management | Asset of the month: EUR/USD | 2nd April 2015

Delta Economics’ asset price forecasting model is giving strong indications that the euro will weaken in April, in line with the model’s predictions that there will be EUR/USD parity by the end of 2015. We forecast a highly volatile month for the euro, with high resistance given that parity is a psychological barrier, particularly in light of the upcoming UK elections and continuing anxiety around a Grexit.

We suggest short positions for the current month and expect that the euro could go as low as 1.01 against the dollar in April. Our analyses show it could reach 1.0035 at an extreme.

The weakness of the euro is a direct product of the confusion created by the European Central Bank’s implementation of Quantitative Easing in March, seen as both too little, too late, and given broader uncertainty around the effectiveness of the strategy. Further, a weak euro is linked to a strong USD, in turn a product of the anticipation of a rise in interest rates, as well as weaknesses evident in Asian markets. The dollar will strengthen further nearing parity, which Delta Economics’ expects to see after April.

Medium term nervousness around sustained Greek membership of the eurozone and contagion effects of any debt renegotiation is putting further downwards pressure on the euro: this pressure is likely to intensify in the coming few weeks. We expect major movements in the market at the start of April, with high volatility throughout the month.