The focus now moves to Fed as its two day meeting starts today. In the note to clients, Deutsche Bank updated its view on EUR/USD where it has been and remains structurally bearish. The bearish EUR/USD view since last year has relied on two major forces: large-scale European capital outflows and the eventual prospect of Fed exit from ultra-accommodative policy. How are these two forces lining up now?
The European outflow story remains fully on track. We continue to see European outflows as part of a multi-year shift in portfolio allocation behaviour towards foreign assets," Deutsche Bank notes. The market remains entirely focused on the exact timing of the first rate hike but there are even bigger forces at play. The most important is the Fed's re-investment policy on QE assets, because decisions here will determine the prospect of what would essentially be QT, or quantitative tightening: nearly half a trillion dollars matures in 2016, almost equivalent to a full QE program in reverse," Deutsche Bank argues.
Euro is currently being traded few points above 1.1030 level. Pair is likely to find support around 1.10 handle and resistance around 1.1080 area. Later today, in the US session, CB Consumer Confidence figures are scheduled for a release.
