EUR/USD enjoyed a relatively stable week. The team at SEB sees a selling opportunity on a rally:
Here is their view, courtesy of eFXnews:
EURO NOT READY FOR A SUSTAINABLE RALLY. The outlook for the euro remains negative, consensus projects EUR/USD to trade lower near parity during H1 2017. We agree, but the market is also clearly positioned for a weak euro -> we expect EUR/USD to rally short-term up towards 1.10 as USDpositioning looks stretched. EUR/USD remains a sell on rallies.
SHORT-TERM: Economic growth is recovering, and the euro area is expanding just above trend. Unemployment is falling, and inflation is slowly rising. We think it likely ECB will continue its QE-program throughout 2017 but that Mr. Draghi may well taper the current pace of purchases further (currently EUR 60bn/month from April). The policy divergence vs. a hiking Federal Reserve remains a relevant (negative) driver for the euro in the coming year. QE policy has likely contributed to making global reserve managers cut the fixed income holding of the euro-zone (large net bond outflows 2015/16), in turn boosting already significant imbalances in the Target 2 system. Furthermore, the current account development (increasing surpluses) is driven almost exclusively by German exports (hence not that strong a supportive euro factor). These factors show that large internal euro-zone imbalances and problems still exist. Political elections in 2017 risks boosting already elevated risk premia in the euro-zone furthermore.
LONG-TERM: The institutional crisis and imbalances that the euro-zone finds itself in, motivates a weak euro for long. Appetite for European assets will be low and foreign capital likely to seek to hedge their euro exposures. We expect the euro trade-weighted currency to be a funding currency of choice in 2017.
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