Differing exchange rate forecasts: Sell the Euro say Bank of America, Buy it argue Deutsche Bank

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Published on Monday, 06 August 2012 12:28

Written by Rob Samson

International Money Transfers at our sister site

"Draghi argued that it was 'pointless to short the Euro.' We beg to differ" -  Laurence Boone at Bank of America.

The start of the week brings with it two interesting perspectives on the future direction of the euro (Currency:EUR).

Over at Bank of America Merrill Lynch analyst Laurence Boone is disappointed with an ECB that has disappointed once more on supporting the Eurozone.

Boone says:


"In what we find a surprising statement for a central bank governor with a market- determined currency, Mr. Draghi argued that it was “pointless to short the Euro.” We beg to differ.

"We expect the EUR-USD to drop to 1.18 in Q3 and to 1.15 by year-end. Weak periphery fundamentals, the inability to agree on any further assumption of liabilities and market concerns that the ECB may not be there as a backstop if countries do not request EFSF/ESM help first – combined with our call for an ECB rate cut in September – should weaken the Euro, particularly if QE3 in the US only follows further negative data."

However, over at Deutsche Bank the opposite viewpoint is taken.

George Saravelos at Deutsche Bank says:

"Tactically buy EUR vs ZIRP currencies. Target 1.27 in EUR/USD, 100 in EUR/JPY and 0.81 in EUR/GBP. We closed out our short EUR/USD trade recommendation as we approached 1.20 last week. It's now time to turn tactically bullish EUR vs the other ZIRP currencies: USD, JPY and GBP. We have become more optimistic in the near-term for three reasons."

"We believe Draghi's press conference was one of the most important policy-making decisions taken so far in this crisis. A new intervention tool is in the making which creates unlimited firepower to defend European sovereigns while removing seniority concerns," says George Saravelos at Deutsche Bank.

"Both IMM positioning and dbSelect show shorts close to or at all-time highs. The risks are therefore biased towards upside surprises in coming months and the market diversifying its shorts towards a more balanced portfolio of ZIRP currencies."

"We are now at levels typically associated with "theme fatigue", suggesting that the odds are now that market themes change. Our G10 FX regime machine provides a good guide as to what matters outside of Europe: currencies with the largest current account deficits and weaker growth prospects are suffering at the expense of others."