Our EUR/USD parity forecast for end-Q1 is a little aggressive - BTMU

"Adding to the political risks in France is of course the elections in the Netherlands and Germany. The outlook in relation to the German elections has changed somewhat following the emergence of Martin Schulz, who became the SPD candidate for Chancellor. The move has boosted the popularity of the SPD and raised the probability of the CDU/CDS not retaining power following the election in September. Greece has also added to the uncertainty although we do not expect problems in Greece to escalate like before. Discussions will continue and we expect an agreement to be reached before large repayments by Greece are due in July.

In these circumstances, the ECB is likely to remain very determined with its message to the financial markets that the monetary stance will be maintained. The data from the euro-zone continues to improve - the euro-zone Composite PMI jumped to 56.0 in preliminary data for February, consistent with Q/Q real GDP growth of 0.6% - but we doubt this will alter the rhetoric of the ECB any time soon. The annual core CPI rate remains stuck at 0.9% and upward momentum over a period of two to three months would be required before the ECB even considers altering its message. The political uncertainty will continue to provide additional incentive.

While EUR/USD moved lower in February, there is a degree of resilience that suggests our parity forecast for end-Q1 is a little aggressive. We therefore have adjusted our forecasts a little higher, but have maintained the same profile as before".

(Source: Bank of Tokyo Mitsubishi UFJ )

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