Thread: FBS: US dollar may resume growth versus euro (Well Fargo)

Strategists at Wells Fargo compare the situation in Greece in May of 2011 with what was a year ago. In their view, there are both common points and differences.

As for the similarities, the source of investors’ fears remains the same, the Fed’s quantitative easing program is approaching its end and there are a lot of short USD positions. As a result, it’s possible to expect that the greenback’s weakness will be limited and that US currency will once again start strengthening in the coming weeks and months.

Though last summer the Fed began signaling the second round of quantitative easing, the specialists don’t think there will be QE3 this year, so the chance of dollar’s fall as in the second half of 2010 is also lower.

According to Wells Fargo, the most likely outcome in Europe is that Greece will keep conducting austerity measures in exchange for further financial aid. The analysts say that though this would harm euro less than debt restructuring, European authorities may be accused of avoiding more decisive and fundamental steps in resolving the crisis. However, the economists admit that the US is also facing important risks such as weak economic data and the debate on raising the debt ceiling.

Never the less, taking into account short US dollar positions, the impending end of Fed easing and European woes the analysts still think that the greenback may resume advance. Well Fargo kept the 3-month forecast for the EUR/USD at 1.4200 and the 12-month at 1.3400.


Chart. Daily EUR/USD

According to Wells Fargo, the most likely outcome in Europe is that Greece will keep conducting austerity measures in exchange for further financial aid. The analysts say that though this would harm euro less than debt restructuring, European authorities may be accused of avoiding more decisive and fundamental steps in resolving the crisis. However, the economists admit that the US is also facing important risks such as weak economic data and the debate on raising the debt ceiling.

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