There are 5 good reasons all round for the EUR to weaken with
particular focus on EUR/USD, says CitiFX in a note to clients today.
"Market: Interest rates, particularly at the short end of the curve, in Europe and the US are moving in opposite directions.
Policy: The ECB and the Fed are facing opposite
directions. The ECB needs to achieve more with its Q.E., particularly a
lower exchange rate as Draghi well knows. The Fed needs to overcome its
fears and hike rates so it is not further behind the curve.
Techamentals: European data has not improved enough and inflation is still too low. On the other side, US data is strong.
Trade: The slowdown in the East, particularly China,
is a current threat to German activity. Granted that China also needs a
weaker currency (or at least not a stronger one) which means the USD
should be set to outperform on a wider scale.
Technical: The price action is still similar to that
seen in 1998-99 - also a period where the ECB and the Fed were facing
opposite directions. The trend lows are not far now and a breach of
1.0458 would be important when seen," Citi argues.
In line with this view, Citi maintains a short EUR/USD position from 1.1110, with a stop at 1.1520, and a target at 1.0450.
