FX: The perfect storm? – Deutsche Bank

Research Team at Deutsche Bank, view this as a ‘perfect storm’ favoring USD strength and similarly, US and European politics in combination with the US policy cycle, is creating a ‘perfect storm’ for even more persistently elevated FX volatility. 

Key Quotes

“We are keeping our long standing call for EUR/USD to slide below parity and leave our 2017 year-end forecast at 0.95.”

“We also await details on the Trump stimulus, and the extent to which the growth impulse falls in 2018 and beyond, before we make any changes to our main 2018 and 2019 forecasts. For now our forecasts are based on the USD upswing being fairly close in length to the early 1980s and late 1990s, though the risks are that this cycle gets extended beyond past cycles.”

“We have revised our forecasts for a weaker yen and pound (Y115 and 1.06 at end 2017 respectively), consistent with the renewed breadth of the USD upswing. Sharpe ratios for carry strategies are set to deteriorate, mainly because of elevated volatility.”