Deutsche Bank - "Earlier this week we took profit on our long-held bullish EUR/USD view on the back of the positive factors we had identified back in August now having played out: LTRO repayments are fully priced, the market is no longer underweight euros, and Euroland data surprises have finally turned significantly positive. Where to from here?
We don't have a strong directional bias in EUR/USD in coming months, with our quarter-end forecast standing at 1.35, but we will eventually be looking to enter shorts with a view towards broader-based dollar strength later in the year.
As far as other EUR-crosses are concerned, we remain bullish EUR/GBP and EUR/CHF despite the significant correction seen in the former this week. Most of the heavy lifting for these crosses will now have to be done by sterling and the franc. For GBP, we see Carney's appointment hearing this week as confirming our view that the BoE will stand out for doing more, rather than less easing this year, which in conjunction with an exceptionally weak flow picture should continue to put pressure on GBP. We think EUR/GBP will reach the upper 0.80s and GBP/USD will trade below 1.50 over the course of the year. EUR/CHF has been stickier, but outside of the languishing safe-haven flows we think the broader risk backdrop is positive for a resumption of medium-term outflows with the 1.20 SNB floor continuing to offer good protection to the downside."