Deutsche Bank says it's time to sell the euro.
In a special note to clients, Deutsche Bank argues that EUR/USD recent painful squeeze doesn't have much more to run advising that these are good levels to re-enter shorts. Deutsche Bank outlines 3 main reasons behind this call:
First, they say, history suggests that counter-moves in dollar trends rarely go beyond the current correction.
"Of the ten largest dollar moves in history, all but one have witnessed a squeeze greater than 10%. The current 9% correction is very close to historical experience, suggesting we should be at (or very close to) the end of the squeeze," DB notes.
Second, positioning is much cleaner.
"FX trading volumes rose during the last two weeks' EUR/USD rally, while the beta of an index of FX fund manager returns to the dollar has already reverted to its medium-term average. IMM data, though lagged, also show ongoing position reduction," DB clarifies.
Third, the risks are skewed to a renewed turn of relative growth and monetary policy expectations in favour of the USD.
"The next move in EU-US rate differentials is therefore likely to be down, not up," DB projects.
In sum, DB's EUR/USD forecast of parity by year-end remains unchanged and believes these are good levels to re-enter EUR/USD shorts.
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