Despite lower direct economic linkages, Barclays Capital
expects that the change in China's exchange rate and growth risks also
will eventually weaken the EUR versus the USD.
"A combination of slower global growth, lower energy and imported goods
prices, and still poorly anchored inflation expectations may force the
ECB to extend the QE program beyond September 2016. We now see EURUSD trading at 0.98 by year-end, and toward 0.93 by end H1 16," Barcalsy projects.
"Combined with all other forecasts, we see the EUR REER
weakening another 10%. The EUR is only currently 6.7% cheap to fair at
the moment (1 standard deviation)," Barclays adds.
"Based on this view, we continue to recommend being short EURUSD," Barclays advises.
In term of this week data, Barclays notes that German final Q2 GDP and August IFO (both Monday) will be the focus this week.
"We and the market expect final GDP to be confirmed at 0.4% q/q and the
market IFO business climate index to moderate slightly to 107.6 from
108.0," Barclays projects.
"In addition, ECB speakers including Vice President Constancio
(Tuesday) and Executive Board Members Praet (Wednesday) and Coeure
(Thursday) will be closely followed ahead of the 3 September ECB meeting
and in the context of recent CNY devaluation, commodity price declines
and general asset price volatility," Barclays adds.
