Strategist: Prepare for a Range Bound Euro
The euro has had a nice run in the last two weeks, but this strategist thinks the party is just about over.
Between a dovish Federal Reserve, hopes for a Greek debt deal, and heightened risk appetite, the euro has been on a roll. Just don't expect it to last, says Athanasios Vamvakidis, currency strategist with Bank of America Merrill Lynch .
"The positive market momentum is so strong, that many seem to forget that the recent EUR rally is only two weeks old," he wrote in a note to clients. "However, concerns about the periphery could come to the fore again" regarding Greece and possibly Portugal, he added.
Vamvakidis expects that going forward, the euro will trade in a range between 1.25 and 1.30. "EUR weakness is limited by its positive impact on the export-driven German economy, the balanced euro zone current account, the hawkish ECB compared with other major central banks, ad-hoc statements by euro zone leaders that a solution to the crisis is one summit away, the uncertain US fiscal policy, and what seems to be an effort by the Fed to keep the USD weak."
At the same time, "EUR strength is limited by the still unresolved and spreading periphery crisis, the expanding ECB balance sheet, and more frequent central bank selling of euros since the global financial crisis."
Major events like a full blown peripheral debt crisis or a new round of quantitative easing in the U.S. could take the currency pair out of this range. But for now, Vamvakidis thinks 1.25 to 1.30 is going to be home base for the euro.
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