Deutsche Bank EURUSD Parity Forecast: Divergence is back?

Deutsche Bank EURUSD Parity Forecast implies that the EURUSD will be able to break out of its 1.05-1.15 range and trade through the parity in 2017. What are the reasons for such outlook?

15 November, AtoZForex The biggest German lender, Deutsche Bank, has shared its views on the EURUSD pair future. The 11th biggest bank in the world believes that Donald Trump’s US elections victory has influenced markets in a broad way.

Deutsche Bank EURUSD Parity Forecast

Deutsche Bank highlights that prior to the US election last week, it has been structurally bearish EURUSD for a long period. Yet, as the Federal Reserve appeared dovish and the ECB ran out of easing options, Deutsche Bank shifted its stance.

Currently, German lender states that it feels more confident that EURUSD will be able to break out of its 1.05-1.15 range. Moreover, the bank believes that the Euro pair will ultimately trade through parity in 2017. In addition, Deutsche Bank provides three reasons for abovementioned changes in EURUSD to happen. Let us guide you through them.

EURUSD set to move?

Firstly, Deutsche Bank has stated that now the pair has started to shift again. The period of the current lack of trend is reaching a record high. The bank noted that the last time the Euro pair broke out of such an extended range, asset allocators and commercial hedgers were not ready for this and the EUR shifted as much as 10 percent in the few following weeks.

USD to become the 3rd highest yielding currency

Moving on, the second reason for the EURUSD to break out of its fluctuation range is the closeness of USD to its level for the late-cycle rally. As a fact, large moves in US dollar are not so dependent on the moves in short-end yields, according to Deutsche Bank. However, big USD moves are depending largely on the absolute level, meaning that whenever USD becomes a top-3 G10 high-yielder, it gains on the yield seeking inflows returns.

The bank further mentions that the expected December rate hike by the Federal Reserve (Fed) will make the USD the third highest yielding currency in the world, with the dollar also being firm.

Divergence is back

The last, but not the least reason for EURUSD parity in 2017 is divergence. Deutsche Bank believes that even before Donald Trump won the US Presidential race, the US growth’s risks were inclined to the upside. More fiscal and regulatory stimuli would further weigh on the growth and Fed forecast.

Meanwhile, European risks are inclined to the downside, as the weakening credit urge and political forecast are present, as the bank reports. The previous gain in the European real rates advances the chances of a more dovish ECB.

In conclusion, Deutsche Bank states that their EURUSD outlooks remain at 1.05 and 0.95 for the end of 2016 and end of 2017, respectively.

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