It is becoming increasingly clear is that the growing current account surplus in the euro-zone is acting as a key support for the euro at current levels, notes BTMU.
"The euro-zone current account was surplus was a record EUR 317bn in 2015, amounting to over 3% of GDP. The more volatile financial market conditions since the CNY devaluation last August has resulted in a slowdown in portfolio capital outflows – since September there has been a smaller portfolio outflow each month through to the latest data for January when there was EUR 163bn worth of net portfolio outflows (6mth basis). Stronger domestic demand, perhaps through fiscal spending is also required in order to help reduce the euro-zone’s growing current account surplus," BTMU clarifies.
But there are reasons to doubt much further upside for the euro as well.
"The Brexit referendum is an obvious risk for the pound at present but we would also argue that a Brexit would be very damaging for investor perceptions in regard to the outlook for the EU and the euro would likely suffer notably on a departure of the UK from the EU," BTMU adds.
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EUR/USD: New Targets
"Given the ECB policy action must now be close to exhausted and given the surprisingly dovish assessment by Fed Chair Yellen, we have raised our EUR/USD forecast profile.
However, we do not see a fundamental reason to change our view of renewed EUR/USD selling as the FOMC is forced to alter its dovishness stance. Our year-end EUR/USD forecast is now 1.0900," BTMU projects.
BTMU targets EUR/USD at 1.12, 1.10, and 1.09 by the end of Q2, Q3, and Q4 respectively.