EUR/USD: Damage On 3 Fronts: Targeting Parity – Credit Suisse

EURUSD is seeing damage on three fronts:

1. Wider rate differentials in favour of USD – our economists expect the ECB to ease policy again in December by rolling QE on for six more months and tweaking its existing conditions to make this possible.

2. Political risk – elections in Holland, France and Germany in 2017 combined with Italy's 2017 referendum all raise the odds that the global populist pressures that led to Brexit and Trump find a euro area manifestation in the months ahead.

3. Policy makers in the euro area are likely to welcome EUR weakness until the point when it becomes disorderly.

One new dimension to our view relative to how we saw the world before the election is an acknowledgement that we were wrong to expect a risk-off environment in the immediate aftermath of a Trump win that would boost defensive currencies like EUR. And for now, we see no sign of strategic shifts away from the USD from large holders like nation states or sovereign wealth funds. We do not rule out such factors materialising in the future however, even now. This is why we will be persistent buyers on dips in longer-term FX vols.

We lower our forecasts from 1.05 to 1.03 in 3m and 1.00 12m.

CS's forecasts last updated on Nov 16. As technical trades, CS runs limit orders to sell EUR/USD at 1.0820 & 1.1025*.

**These trades are auto-recorded, tracked, and updated in eFXplus Orders.