EUR/USD Exchange Rate Converson is on the Path Lower

BNP Paribas have told clients in a strategy note that they see value in playing the euro / dollar exchange rate downside.

The strategy note, released in late July, sees a sell on the EUR/USD becoming opportune around the 1.1025 rate.

At the time of writing euro dollar is at 1.1033 and is therefore primed for a sell, if you are inclined to follow BNP Paribas’ recommendations of course.

The target for the trade is a rate of 1.05 and justification rests with an impending capital outflow from the Eurozone.

Commenting on the strategy is Vassili Serebriakov:

“We remain short EURUSD spot, with a 1.05 target, and were somewhat surprised by the EUR’s squeeze higher this week, as our positioning indicator continues to suggest the market is only moderately short.

“The fundamental case for renewed capital outflows from the eurozone remains compelling, as the previous debate on whether the ECB may need to do less QE has now turned into a discussion of whether it should do more.”

The profile of the euro remains under pressure long-term as Interest rates will stay low for a long time and, as a result, the EUR is likely to continue to trade as a funding currency.

“In the context of the ECB‘s quantitative easing programme, real yield differentials should move further against the EUR, resulting in portfolio outflows,” say BNPP in their latest global foreign exchange note.

At the same time analysts at the French bank remain USD bulls.

The USD is expected to continue benefiting from higher US yields against a backdrop of ECB and BoJ QE.

BNP are a little displaced from consensus in that they expect the Fed to begin normalising policy in December.

The majority of analysts, we note, are forecasting the first rate hike to occur in November.

Furthermore, analysts confirm they are beginning to see a tentative pickup in long-term capital flow support for the USD.

BNP Paribas are forecasting the euro / dollar exchange rate to fall to 1.02 by December 2015, parity by the 1st quarter of 2016, parity to hold through the middle of 2016 and a gradual rise to 1.04 by year-end 2016.