Euro bears grow louder as parity edges closer

Is it the moment when a particularly bearish forecast proves a contrarian indicator? US exporters will hope so.

Strategists at Deutsche Bank expect the euro to fall to the $0.90 mark against the dollar by the end of 2016 and keep falling over the next 12 months to end 2017 at $0.85.

The German bank isn’t alone in predicting a weak euro – it was the consensus in foreign exchange markets at the start of 2014.

Its thesis, though, leans not just on the interest rate differentials between the US and Europe as monetary policies diverge, but on the glut of saving savings in the eurozone. They argue:

The Eurozone’s current account surplus is a symptom of a large pool of excess savings looking for investable assets abroad

Negative rates and quantitative easing from the ECB have engineered an acute problem of asset shortage in Europe, in turn initiating a process of large-scale capital flight. Over the last few months, more than €300bn worth of capital has left Europe.

The prediction from Germany’s biggest bank comes as the euro moves to within less than seven cents of parity against the dollar – a level it’s not reached since 2002.

According to a poll of 93 strategists, Deutsche is now the most bearish on the euro along with ING, which also expects the single currency to end 2016 at $0.90.