The euro might be looking a little tired after last week reaching a one-year high of $1.1445.
An improving economy, signals from the European Central Bank that the end of stimulus is in sight and waning political risk in the eurozone have all proved supportive of the 19-nation currency.
Nonetheless, for all the current positivity over the single currency, analysis from Swedish bank SEB points out that the euro is still in the $1.05 to $1.15 range that it has been in for more than two and a half years.
Analysts at the Nordic bank are circumspect on the currency’s chances of breaking forcefully through the range and on toward $1.20 — a level it last held in January 2015.
Carl Hammer, an analyst at the bank, lists three factors required for such a move: “stronger fiscal collaboration within the eurozone, internal imbalances in the eurozone decreasing and the ECB starting to raise its refi rate/stop QE”.
“None is expected in the next six to 12 months,” notes Mr Hammer plainly. “For the euro to trade at or above $1.20 we need to see more progress on economic/political reforms and the ECB approaching the exit door.”
But the chances of a more limited rise above he $1.15 mark look brighter, in part thanks to ECB policymakers becoming more relaxed about that level, according to SEB.
“For some time it has been rather obvious that $1.15 has been a relatively sensitive level for the central bank,” says SEB. “This should arguably decrease as ECB feels more secure about the economic recovery and with it the outlook for inflation.