Deutsche Bank is out with a note today highlighting trading themes for 2023 and argues that global growth should be more balanced this year, sapping demand for the dollar. They also argue that Europe's energy shock is rapidly reversing and that terms of trade have quickly reverted.
EUR/USD drivers are turning on multiple fronts. Interest rate differentials are pointing to a fair value above 1.10 and the rate spread can narrow further still. Energy prices have reversed the entirety of last year's spike so that Europe's trade balance is set for material improvement. Positive European rates have seen a collapse in portfolio outflows and a big improvement in the financial account. Chinese reopening will help European growth more than the US.
They see EUR/USD returning to 1.10 in Q2 and 1.15 by year end.
