FXStreet (Edinburgh) – Strategist Piotr Matys at Rabobank expects the single currency to slip towards parity levels vs. the US dollar in the medium to long term.
Key Quotes
“From the fundamental point of view, it is important to emphasise that the euro has become a funding currency, which means that it tends to weaken when demand for risky assets improves and strengthens when risk aversion increases (this explains why EUR/USD has been performing rather well despite the Greek saga)”.
“Hence, a potential EUR/USD rally triggered by a positive outcome of today’s Eurozone summit is likely to fade in our view”.
“What if Greece is not able to reach a deal? Paradoxically, EUR/USD could still hold relatively well in the initial phase of global sell-off given that Greece’s default would trigger a fresh wave of capital outflows from EMs, which earlier this year benefited from demand for higher yields fuelled by the ECB’s full-scale QE”.
“Once this potential source of support fades, EUR/USD would fall sharply towards the parity”.
(Market News Provided by FXstreet)