"EUR-USD should find support at times on hopes of strong policy steps at the EU leaders summit but ultimately disappointment - and poor data - should cap EUR/USD: - Westpac.
Analysts at Westpac have issued their latest forecasts for a number of key exchange rates. (For latest FX forecasts please access our IMT site via this Facebook entry way).
"EUR-USD should find support at times on hopes of strong policy steps at the EU leaders summit but ultimately disappointment - and poor data - should cap EUR/USD either side of 1.28," says a note from Westpac.
While ongoing stress in the Spanish bond market quickly soured the initial euro rally on the win for the pro-bailout parties in Athens, the single currency has managed to find support on dips.
It seems hope will linger for substantial action at the EU leaders summit on 28-29 June.
"We can effectively rule out any real game changer such as a plan for Eurobonds but EUR should avoid a major slide so long as German chancellor Merkel is willing to admit that it’s a “possibility” that bailout fund ESM could purchase sovereign bonds and the ECB is openly lobbying for financial integration including deposit insurance," say Westpac.
Australian dollar, New Zealand dollar outlook
"AUD/USD should have another go at establishing a beach head above 1.0200 but is likely to fail with a quiet domestic calendar leaving AUD - and NZD - watching Europe. AUD/NZD remains on track for 1.26," say Westpac.
AUD/USD is currently on track for a third straight week of gains but hasn’t managed a 4 week rally since Jan-Feb.
It shapes up as a mixed week, with bounces on EUR-supportive stories but disappointment most likely either at the EC summit or close to it.
"This leaves us with a neutral bias on the week still down on the month, though risks now seem more to the 0.98-0.99 area than 0.96-0.97. The 200dma at 1.0250 should prove tough resistance near term. We remain short AUD/NZD from 1.2905 and have pulled the stop loss order to just below entry," says the Australian bank.
With regards to the New Zealand dollar:
"We will stick with our view that slower China growth and Euro-shock potential during the next few months will push the NZD below 0.7370 in the meantime."
US dollar forecasts
"The cautious FOMC and skittish equity markets should keep Dollar Index supported on dips to 80.90," says the currency forecast note.
Westpac advise that they do not read an extension of Operation Twist as a USD negative, removing at least one key downside USD risk
From here see near term event risk more likely breaking in the USD’s favour.
"USD index is a strong buy into 80.90 on the charts. Beyond that a growing divide between US and EZ growth prospects points to ongoing trend USD appreciation (the EZ economy is saddled with much tighter financial conditions and more intense deleveraging and austerity pressures than the US)," say Westpac.