We maintain our EURUSD 1.15 three month target. The target was based on the following rationale:
do not expect the Fed to hike this year (Credit Suisse has the first
hike penciled in for May 2017) despite the market still pricing in a 50%
probability of this.
2- We think any US
political risk elevation going into the November 8 Presidential Election
would boost liquid, defensive currencies like EUR.
3- We see the ECB as likely to deliver only marginal new easing measures in December.
What would make us revise our view?
is still possible that the political environment in Germany is slow
enough to respond to further banking stress that a still fragile
European banking system reacts badly, leading to a loss of confidence
and a funding squeeze. We have attributed a low probability to this as
the Italian banking prob
Secondly, the Italian
Constitutional referendum date has been set for December 4. If this
leads to i) defeat for PM Renzi and ii) his subsequent resignation, the
resulting political upheaval could be problematic for EURlems over the
summer were in some ways even more problematic yet did not cause overall
deposit flight But we flag the risk nonetheless.