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A combination of factors such as plans to joint debt issuance, German fiscal expansion, and the extension of the ECB PEPP programmes call for medium Run EUR bullishness, according to Jeremy Stretch from CIBC Capital Markets.

Key quotes

“Although we are not yet considering debt mutualisation, there has been progress on that end. For instance, Germany has come around to the concept of rescue funds largely made up of grants (and not loans only).Furthermore, the German government has left the ‘black zero’ budget policy behind via two significant fiscal expansions, the latter equating to a larger than expected €130bn.” 

“Although there has been pushback against the EU’s proposed €750 billion rescue plan from the ‘Frugal Four’ (Austria, Denmark, Sweden and the Netherlands), we expect this pushback to dissipate.” 

“The combination of a plan advocating joint debt issuance, German fiscal expansion, and the extension of the ECB PEPP programmes underlines our bias towards medium run EUR impetus. The risk to our EUR bullish view is if talks on the EU rescue fund breaks down.”

“Q3 20: 1.14 | Q4 20: 1.15”