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11 Mar 2015
EUR/USD might weaken to 0.85 by 2017 – DB
FXStreet (Barcelona) - Strategists at Deutsche Bank explain that for Eurozone’s current account surplus to be sustainable it needs a large amount of outflows, which would lead to EUR/USD weakening to parity by 2015-end and down to 85 cents by 2017.
Key Quotes
“With European portfolio outflows currently running at record highs.. Can outflows continue? How big will they be? The answer to this question is critical: the greater the European outflows, the more the euro can weaken and the lower global bond yields can stay.”
“We find that the Eurozone’s NIIP needs to rise from -10% of GDP to at least 30% for Europe’s current account surplus to become sustainable.”
“We estimate that this adjustment requires net capital outflows of at least 4 trillion euros, equivalent to a continuation of the current pace of outflows for the next eight years. The adjustment can materialize quicker if the euro weakens, or if the current account moderates, but is large irrespectively.”
“The current pace of capital outflows is even larger than our expectations from last year.”
“Combined with our estimates above we revise our EUR/USD forecasts lower. We now see EUR/USD moving down to 1.00 by year-end, 90cents by 2016 and down to a trough of 85cents by 2017.”
Key Quotes
“With European portfolio outflows currently running at record highs.. Can outflows continue? How big will they be? The answer to this question is critical: the greater the European outflows, the more the euro can weaken and the lower global bond yields can stay.”
“We find that the Eurozone’s NIIP needs to rise from -10% of GDP to at least 30% for Europe’s current account surplus to become sustainable.”
“We estimate that this adjustment requires net capital outflows of at least 4 trillion euros, equivalent to a continuation of the current pace of outflows for the next eight years. The adjustment can materialize quicker if the euro weakens, or if the current account moderates, but is large irrespectively.”
“The current pace of capital outflows is even larger than our expectations from last year.”
“Combined with our estimates above we revise our EUR/USD forecasts lower. We now see EUR/USD moving down to 1.00 by year-end, 90cents by 2016 and down to a trough of 85cents by 2017.”