The fall of Euro against US Dollar accelerated after February NFP figures emerged better than expected. Meanwhile, European Central Bank (ECB) at last began its bond-buying program which bring Euro to a new low. Euro now is traded around 1.05 USD for the first time in 12 years.

The fall of Euro against US Dollar accelerated after February NFP figures emerged better than expected. Meanwhile, European Central Bank (ECB) at last began its bond-buying program which bring Euro to a new low. Euro now is traded around 1.05 USD for the first time in 12 years. The single currency have depressed near 15% against US Dollar in the last three months, and the two is now on the brink of parity. Euro also weakened against Sterling, Yen, and Aussie.

 

Performa

Euro Performance Against US Dollar, Japanese Yen, Poundsterling, and Australian Dollar

 

European Bonds Yields In Negative

ECB started its massive bonds-buying program by buying 3.2 billion Euros worth of sovereign bonds and other assets in Monday. The program's target was to buy 60 billion Euros of bonds each month till September 2016, with total amount of 1.1 trillion Euros.
 

The start of ECB bonds-buying program have pushed Euro sovereign bonds yield tumbled to record low under zero and drive investors out of the area. Reuters reported that German two-year Schatz yields fell to a record low of minus 0.241 percent, while French two-year yields hit a low of minus 0.149 percent. Bonds yield below zero means that instead of receiving interest in turn of lending funds through buying bonds, investors will have to pay interest. In the circumstances, it is understandable why investors are keeping their distance from Euro-denominated fixed-income assets and boost bearish pressures on the single currency.

 

Market Expect EUR/USD To Reach Parity

Results of Societe Generale latest survey that was published in eFXnews yesterday (11/3) revealed majority of respondents tend to sell EUR/USD at rally with target on 1.0.

 

Hasil

Left: The survey asked whether the respondent is a seller on EUR/USD rallies or a buyer on dips, with result: 66% sell on EUR/USD rallies and 12% buy the pair on dips. 
Right: The survey asked what level of EUR/USD is the respondents' target (dark blue) and respondents' prediction on what level of EUR/USD is the ECB targeting, which resulted in 45% of respondents targeted parity.

 

According to the multinational bank, market expects ECB Quantitative Easing will end as scheduled at fourth quarter of 2016 and for first rate hike at 2018. Investors also consider it likely that ECB is targeting EUR/USD at parity (1.0). At the same time, the market also believes that US Dollar appreciation up to 10% or more will influence US the Fed's policy. If that happends, then there is possibility the Fed will intervene in the forex market to weaken the US Dollar. It could be because of this reason too, there are respondents that buy EUR/USD on dips.

 

Optimistic ECB and Eurozone

Meanwhile, ECB bonds-buying program attracted criticism from European economists because many doubted if the ambitious program will be able to reignite the area's economy. Even so, ECB President, Mario Draghi, argued, lower interest in many Euro countries despite of the ongoing Greek Debt Crisis has shown that the program has protected the aforementioned countries from contagion. As we know, Troika that consists of ECB, European Commission, and IMF, has been embroiled in bitter debate on the topic of Greek bailout renegotiation. 
 

German Finance Minister, Wolfgang Schaeuble, also inferred that cheap Euro and decreasing bonds yield at record low will be positive for Eurozone economy, particularly export-based large businesses. He claimed that though exchange rate is at twelve year low, but ECB moves to lift inflation and support the economy have regained market confidence on the Euro stability.


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