The report from Deutsche Bank concludes:
- we remain bullish EUR/USD and believe corrections lower this year should be bought
"But why?" you ask ... read on.
DB outline 3 reasons for their view. In summary:
1. Natural gas prices falling. DB say:
- on current trends gas storage could be refilled by the summer. After that, Europe won't need to buy more gas until winter
- we estimate Europe's import bill could more than halve this year, implying 100bn-150bn less EUR selling from natural gas alone
2. Over the past ten years, European investors have engaged in a massive divestment programme of domestic yield in favour of international assets. These outflows have ceased as European yields are currently rising.
3. DB's main macroeconomic thesis remains that this year will see a structural interest rate differential that is shrinking in favour of Europe. DB go on:
- market-implied real policy rates in the US are projected to reach 3% this year
- In Europe, market-implied real policy rates are still negative, barely above 2011 levels and therefore have more upside
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Weekly EUR/USD chart shows the buy the dip trade is already active:
