Bank of America Merrill Lynch expects a decline in the euro / dollar

According to analysts at Bank of America Merrill Lynch, by the end of the year the euro / dollar will weaken, as the markets are absolutely unprepared for the decisive mood of the Fed or for the cautious position of the ECB. The bank identifies three possible scenarios for the development of events in the context of the monetary policy of the two largest central banks in the world.
At best, the state of the world economy will improve, and the States will publish a positive statistics, fueling the state of euphoria in the market. The Fed will continue to follow the path of normalizing monetary policy, supporting the dollar. The strongest impact on the yen, but the euro will also be under pressure.
Under a bad scenario, the bank takes into account the possibility of escape from risks for geopolitical or other reasons. In this case, Fedrezrev will slow down the pace of normalizing the policy, but the ECB will still announce the curtailment of the asset purchase program. In this case, the euro / dollar will rise, but slightly, because at this stage the market is already laying the price of the cautious position of the Fed. The dollar / yen is likely to fall, but in pairs with other currencies B10 USD will feel quite confident.
The worst situation will be if the risk aversion is massive, which will increase the likelihood of a new crisis or a global recession. At Bank of America Merrill Lynch believe that in this case, the yen and the franc will grow, as are the traditional currency-shelters. The dollar and the euro will also feel good in pairs with other currencies. The dynamics of the dollar / dollar will depend on what specific catalysts and causes trigger panic.
“Thus, all three scenarios indicate that volatility is more or less favorable for the dollar, especially in pairs with developing currencies and risk currencies,” the bank explained.

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