Deutsche Bank analysts point out that the EUR has stayed in a remarkably tight range over the last 6m seemingly immune to both dollar negative (pricing of Fed easing) or USD positive news (persistently negative European growth surprises).
Key Quotes
“Our forecasts embody an expectation that the deadlock will ultimately resolve itself in a higher EUR/USD to at least 1.20 over the course of the year helped by a combination of positive flow and cyclical dynamics.”
“On the flow side current account surplus recycling is slowing down leading to a gradually improving basic balance. On cyclical side our baseline is for an improvement in Euro area growth cycle in 2nd half of the year while US may be vulnerable to further downside expectations due to waning fiscal stimulus.”
“Finally, the risks are skewed to shifting political risk premia in a more negative dollar direction with Brexit and trade risks likely receding by H2 while the market focus should gradually shift to the US presidential election and the controversial macro policies associated with prominent Democratic presidential contenders.”
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