EUR/XAF Outlook:
The EUR/XAF is currently near its recent average, trading at 90-day highs. Despite this elevation, the outlook is likely to move sideways due to mixed signals from geopolitical tensions and economic conditions in the Eurozone.
Key drivers:
• Rate gap: The European Central Bank faces increased pressure from rising energy costs, unlike the stable position of the Bank of Central African States, which supports the XAF.
• Risk/commodities: Oil prices are significantly above their recent average, impacting the Euro's strength as higher costs increase inflation risks in the Eurozone.
• One macro factor: The rise in Eurozone unemployment may not immediately translate into improved economic conditions, affecting EUR performance.
Range:
Expect the EUR/XAF to drift within the recent 3-month range, holding near current levels.
What could change it:
• Upside risk: A decrease in oil prices and easing geopolitical tensions could support the Euro.
• Downside risk: Continued energy price volatility and worsening trade relations could pressure the Euro further.
