Deutsche Bank argues against chasing EUR/USD lower, with a 1.17 year-end forecast challenged by the Euro’s latest slide below 1.13.
The Euro has fallen through the range Deutsche Bank expected to hold, putting its argument against further Dollar gains to an immediate test.
The Euro to US Dollar exchange rate (EUR/USD) traded around 1.1254 on Friday morning, up 0.05% after Thursday’s 0.70% drop, following a 2.50% decline in September.
Euro to Dollar (EUR/USD): 1.124864 (0.00%)
Dollar to Yen (USD/JPY): 157.58951 (-0.22%)
In its analysis written with the pair near the bottom of its 1.13-1.20 range, Deutsche Bank rejected the growing expectation of a sustained Dollar breakout.
“We sit in the latter camp and don’t agree with the increasingly consensus view that the dollar is about to break out.”
Its year-end EUR/USD forecast of 1.17 implies a recovery of roughly 4% from the latest rate.
The bank’s case rests on resilient growth beyond the US, limited additional support from American yields and scope for the energy shock to ease.
“Global data surprises remain at the year highs, China has announced further stimulus, and the European PMIs are consistent with above-trend GDP growth. This global growth environment is not consistent with US exceptionalism.”
Britain’s upward revision to second-quarter GDP growth to 0.5% offers one example of that resilience.
Deutsche Bank also argues that expectations for Federal Reserve tightening already look generous.
It sees further increases in US bond yields as more likely to reflect compensation for longer-term risks, rather than additional policy tightening, making them less supportive of the Dollar.
On energy, the bank sees improving Middle East oil flows as consistent with prices closer to $90 a barrel by year-end.
“In sum, with global growth solid, energy markets already pricing a lot of risk premium and the Fed hiking cycle very well priced, this is the wrong time to be chasing EUR/USD lower.”
The break below 1.13 has challenged its range call, leaving the 1.17 forecast dependent on a reversal of the Euro’s recent losses.
Our currency coverage draws on live market data, official economic releases and published bank research.
