2 Reasons For Staying Bearish EUR/USD Targeting 1.25 –

The recovery in EUR/USD has already somewhat eroded, but  where is the pair headed next?

The team at Deutsche Bank explains why staying bearish is the way to go, and points to the next level:

Here is their view, courtesy of eFXnews:

Deutsche Bank’s bearish EUR/USD view over the last few months has relied on two factors: a material turn in ECB policy and a changing flow picture.

“Across both fronts, the drivers still point down,” DB argues.

1- Monetary policy.

“Recent risk-aversion has shifted attention back to the Fed and a potential change in the timing of the first rate hike. Our view is that one should distinguish between cause and effect. The cause of recent turbulence is disinflationary pressures from Europe (and China), not the US. As such, it is the ECB, not the Fed, which has the greatest potential to ease over the next few months,” DB clarifies.

2- Capital outflows.

“The second rationale behind a weaker euro has been the turn in the underlying flow picture. Near-term, our high-frequency ETF monitor continues to point to large-scale liquidation of European equities by American investors…Bigger picture, we believe it is the potential for large-scale European purchases of foreign assets that can drive currency weakness,” DB adds.

“In sum, the flow and relative central bank picture for EUR/USD continues to point down. We remain comfortable with our 1.25 year-end target in EUR/USD,” DB concoludes.

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