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Forex pairs in this Article » EUR/USD (Bali) - HSBC challenges some of the suggestions offered by market commentators as to why the EUR will remain resilient throughout 2014, noting the currency is expected to weaken this year.

Key Quotes

"We are not convinced by a number of suggestions offered for the EUR’s resilience to wider USD strength. One idea is that EUR is gaining on the basis of its improving current account balance. Yet the US deficit has seen an even greater correction in its imbalance. In addition, the swing into surplus for the Eurozone reflects economic weakness or collapsing domestic demand not strength."

"The second suggestion is that the EUR is being supported by portfolio flows, but the Eurozone is not the only market to see buying of local equity and bond markets. Furthermore, portfolio flows are not the dominant aspect of the Eurozone’s capital account."

"Like the AUD in 2013, which seemed initially immune to deterioration in many of its macro drivers, we therefore expect the EUR to belatedly weaken in response to its economic frailties. The divergent paths of US and Eurozone monetary policy and the relative pace of economic growth point to a much lower EUR during 2014."
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