EUR: Monetary Policy Decoupling Will Weaken The Euro

Short-Term Outlook:

Since turning tactically bullish the euro in early 2013, the single currency has held remarkably firm on a trade weighted basis and is trading above the 15-year average against the US dollar (US$1.22/EUR). As we highlighted at the time, the beleaguered euro is being bolstered by passive monetary tightening at the European Central Bank, a current account returning to surplus and foreign demand for undervalued European assets. More recently we have argued that these dynamics will continue to prop up the euro in the early stages of 2014. Even if the euro pulls back from resistance at US$1.38/EUR, we would still expect the currency to hold firm in the US$1.34-1.38/EUR range in the near term.

Core View:

Flirting With Resistance
Eurozone - US$/EUR

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Related sectors of this article: Economy, Exchange Rate Policy

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