EUR/USD: Relative Supply Of Liquidity Speaks In Favor Of Higher EUR/USD

By Nordea via eFXNews

Nordea Research discusses EUR/USD outlook and maintains a structural bullish bias targeting a move towards 1.20 this year.

“The US Treasury currently holds close to USD 400bn at the account with Fed. If they bring that down by at least 200bn, the commercial banking system will be on the receiving end of that liquidity. This is a USD negative scenario.

On the other hand, the ECB will probably allow the balance sheet to contract in size as some sort of bridge solution to maturing TLTROs will only be offered on less attractive terms. Eventually that should push some of the TLTRO banks back into the “regular” issuance market – and allow the ECB balance sheet to shrink,” Nordea notes. 

The bottom-line is a relative supply of EURs versus USDs that should work slightly in favour of the EUR – our first target for EUR/USD is 1.20 within 2019,” Nordea argues. 

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