Deutsche Bank says EUR/USD to revisit year lows soon, forecast 1.05 by year-end

Author: Eamonn Sheridan | Category: News

From Deutsche Bank's latest on euro , this via eFX

What's behind the moderately stronger USD and slightly weaker EUR?

An evolving narrative had its roots in higher Treasury yields but has moved on to a collection of other issues including: less skepticism on Fed rate hikes; European political uncertainties that will soon clash with new US fiscal probabilities; path dependent trades triggered by a break of old ranges; China's 'opportunistic' weaker currency policy and reserve rebalancing considerations; and the EUR's evolving status as the medium-term G3 funding currency of choice in the global hunt for yield.

It is too early to stand in the way of this recent momentum, even if the backdrop for a break to new cycle ranges on key currencies like the EUR will likely have to await a new year.

....The cumulative nature of the above factors works with EUR/USD challenging the year lows at 1.0711 soon, and plays to our 1.05 EUR/USD year-end forecast.

It also works with the closing gap between EUR/USD and USD/JPY vol. However, a break of the bigger cycle DXY highs and EUR/USD lows likely needs a new catalyst. Politics is one possibility, but political events are often more negative before the event, unless like Brexit, their widespread ramifications generate lasting uncertainty and an ongoing policy dilemma, that includes tolerating and/or encouraging currency weakness.

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