FX Convictions – Short EUR/USD

by: Roy Teo , Georgette Boele

In this publication: The US dollar rally is likely to continue for some time…reflecting a stronger US economic outlook and a faster pace of Fed rate hikes. EUR/USD seen breaking through parity, also fuelled by European political risk and an ECB QE extension. We therefore are adding short EUR/USD to our conviction list.


161202-FX-Conviction-Bearish-EUR-1.pdf (247 KB)



Short EUR/USD: Target 0.95 Stop loss 1.09

We have decided to add short euro versus US dollar to our conviction list. The US dollar has more room to strengthen given that financial markets are pricing in less than two rate hikes in 2017, while we expect three. We expect the EUR/USD to break through parity next year. There are also factors that will weigh on the euro, such as elevated European political risk and an extension of the ECB’s QE programme.



An unwinding of speculative long positions (twice as large compared to in early 2015 when EUR/USD was around 1.05) in the euro is expected to trigger stop loss levels layered below the 2015 low of around 1.0458. Similarly, though speculators have increased their long US dollar positions in recent weeks, levels are not extreme yet. As a result further weakness in the euro is likely in 2017. Our target for EUR/USD is 0.95. We have placed a stop loss at 1.09.