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Majority sees euro recovery against dollar Back  
At the beginning of each quarter, Finance invites bond and currency market experts to give their outlook for the quarter, and to predict the level of key indicators at the quarter end. The second quarter of this year began on 3rd April, and will end on Friday 30th June. Next July, analysts will have an opportunity to look back on the quarter past and review how the market performed against expectations. The following are the assessments for the current quarter.
John Beggs, Chief Economist
Allied Irish Bank, Corporate and Commercial Treasury

EUR/USD: 0.97 EUR/YEN: 103.50
EUR/GBP: 0.61 USD/YEN: 106.50

Comment: Foreign exchange markets will remain very volatile. We expect a EUR/USD range of $0.94-0.98 and a EUR/GBP range of Stg.0.595-0.62. All three central banks (ECB, Fed, UK’s MPC) are expected to raise interest rates this quarter. In the US, the main risk for the dollar is a downturn in equities. In Europe, the credibility of the ECB and economic growth prospects will be key for the euro. On balance, after a period of euro weakness , the improving growth differentials between the eurozone and the US should help the euro by end June. The USD/YEN rate should trade within narrow limits.

Laura O’Shea
Bank of Ireland Treasury, Economic Research Unit

EUR/USD: 0.97 EUR/YEN: 99.00
EUR/GBP: 0.62 USD/YEN: 103.00

Comment: Continuation of strong US economic data will limit the euro’s upside. Below parity trading seems likely for the most part.
Substantial euro recovery is unlikely against the background of rising UK interest rates. The market seems determined to be bullish on the economic outlook in Japan, and sceptical about the euro and this should keep the yen well supported in this cross. Intervention may not be a major issue if yen strengthening is gradual as opposed to sharp. In the absence of an equity market correction, the outlook for dollar yen is stable.

James Jordan, Senior Technical Analyst
Bank of America, Foreign Exchange Sales and Trading

EUR/USD: 0.8900 EUR/YEN: 96.00
EUR/GBP: 0.5600 USD/YEN: 108.00

Comment: EUR/USD in a firm downtrend since its inception. Bear channel since October 1999 has defined the trend very well and points to a falling target of 0.8900 over the next few months. EUR/GBP in a downtrend with a bear channel defining price action very well since January 1999. Technical indicators are trending bearish and we look for further losses over the medium term towards a target of 0.5600. On EUR/YEN, long term trend indicators are bearish although downside momentum looks to be slowing. Bias remains for lower but losses likely to be muted. USD/YEN consolidating over the key psychological 100.00 level. Whilst this remains intact we can make further upside attempts. Long term downtrend though should keep gains meagre.

Aziz McMahon, Treasury Economist
Ulster Bank Capital Markets

EUR/USD: 0.9050 EUR/JPY: 0.9700
EUR/GBP: 0.5900 USD/JPY: 101.00

Comment: The striking feature of FX in 1999 was the unprecedented strong relationship between rising US stocks and a falling EUR/USD. In H1 1999 the correlation between the broad-based S&P 500 and EUR/USD was 60% and rose to a staggering 93% in Q4. Many analysts expected the reverse relationship to hold with any stock market decline driving EUR/USD higher. In fact, stocks declined but EUR/USD hardly budged. That’s an indication that even in bad times, investors prefer US assets (Treasuries), to euro-denominated ones. We expect the euro to remain under pressure against USD and GBP. Meanwhile, despite mixed Japanese economic data, JPY’s rise seems inexorable.

Eddie Murphy, Vice President Treasury
Citibank NA

EUR/USD: 1.0 EUR/YEN: 108.00
EUR/GBP: 0.6250 USD/YEN: 108.00

Comment: Changes in expected interest rate differentials have been good coincident indicators of movements in Eur/Usd. Interest rate markets have begun to discount more aggressive FED tightening and as the interest outlook in the EUR area has not kept pace, we abandon any thoughts of a near term rally in the Eur with a visit to recent lows not ruled out. However, while a common perception exists that the value of the EUR/USD does not trade closely with US equity market moves, we would suggest that the fundamental justification for such a correlation is increasing. Excessive domestic demand is a concern for the FED, at the same time much of that demand appears a function of the wealth effect and clearly the US unit will derive it's value from above. Given the recent setback in the broad US equity markets, we believe the steady decline is reaching an end, with a strong potential for a move back to parity.

Austin Hughes, Economist
IIB Bank

EUR/USD: 0.975 EUR/YEN: 105.0
EUR/GBP: 0.625 USD/JPY: 107.5

Comment: The Euro should gain substantial ground by end year but perhaps not as early as June. The dollar may lose some lustre as the US economic growth moderates and inflation pressures ease back. That combination should prevent a sharply negative US dollar trend developing in asset markets but the Euro could gain ground on an improving Euro area economic outlook. This should also boost the Euro against sterling, particularly if the peak in the UK interest rates had been reached. We expect FX intervention and/or mixed Japanese data to keep dollar/yen within a 105-110 band.

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