EUR 2016 Outlook – Forget About Parity
EUR 2016 Outlook – Forget About Parity
By Kathy Lien, Managing Director of BKAsset Management
Six years after the financial crisis and the European Central Bank is still struggling to turn around their economy.
As recently as December, they increased stimulus in a desperate attempt to revive growth and drive inflation higher. This illustrates how deeply entrenched the slowdown is and how poor of a job Eurozone policymakers have done this past year. In the third quarter, the Eurozone economy expanded by a mere 0.3%. During this same period the U.S. economy grew 2%. Inflation is low around the world but the approximately 10% slide in EUR/USD combined with the full scale QE program launched in early 2015 should have been more effective in boosting inflation, which ran at a 0.2% annualized pace in November – well short of the central bank’s 2% target. 2016 brings more challenges for the Eurozone economy.
As for the currency, forget about parity. Technically, there’s only 2 important support levels in EUR/USD – the 12 year low of 1.0459 and parity.
The greatest risks for the Eurozone in 2016 are political. Greece will be back in the headlines as the government struggles to enact reforms and meet the demands of its bailout. According to S&P, the country is still at risk of default. At the same time, migration will be a touchy subject for Europe. In 2015, European nations welcomed millions of Syrian refugees with open arms but the Paris attacks have transformed the attitude within Europe and there are now calls for tighter border controls. These demands will quickly intensify if ISIS stages another attack in the region. There’s no question that there will be attempts and it will be up to European intelligence to avoid another catastrophe. In 2015 Russia’s brazen intervention in Ukraine shattered Europe’s illusion that conflict on the continent was long gone history. The EU was forced to enact sanctions, straining relations with Russia and in the middle of the year, they will need to decide whether the sanctions which last until July, should be scrapped or extended. So between sluggish growth, deepening refugee crisis, ISIS aggression and Russian tensions, 2016 will be full of challenges for Europe.
Source: http://kathylien.com/japanese-yen/eur-2016-outlook-forget-about-parity
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