From a client note, Deutsche Bank view on EUR/USD ... remain "structurally bearish"
DB's bearish EUR/USD view since last year has relied on two major forces: large-scale
European capital outflows and the eventual prospect of Fed exit from
ultra-accommodative policy. How are these two forces lining up now? Here
are the updates from DB along with its targets for EUR/USD over the coming months.
1 - "The European outflow story remains fully on track.
We continue to see European outflows as part of a multi-year shift in
portfolio allocation behaviour towards foreign assets," DB notes.
2 - "What about Fed tightening? The market remains entirely focused on the exact timing of the first rate hike but there are even bigger forces at play. The
most important is the Fed's re-investment policy on QE assets, because
decisions here will determine the prospect of what would essentially be
QT, or quantitative tightening: nearly half a trillion dollars matures
in 2016, almost equivalent to a full QE program in reverse," DB argues.
3 - "Irrespective of lift-off, the key point then is
that Fed tightening is multi-dimensional and likely to steadily
reinforce a persistent shift away from the dollar as the world's major
funding currency," DB projects.
"In sum, we remain bearish EUR/USD and after a Q2 lull
accompanied by much lighter investor positioning we expect expect the
weakening trend to resume," DB concludes.
DB continues to target EUR/USD at 1.02 by Q3-end and at parity by year-end.
