Sebastien Galy, Senior FX Strategist at Societe Generale, maintains the bearish view on the single currency.

Key Quotes

"Month-end demand or lack thereof will likely determine the dynamics of EURUSD in the coming months. Demand from foreign reserves is likely to be a lot weaker than expected as the threat of QE spooks reserves into staying in USD keeping the UST curve well bid particularly in the front end and distorting the price signal even more."

"After a sharp drop in EURUSD in August, portfolio rebalancing will create an automatic large demand for EUR. This will be weaker if tactical asset allocators increase their EUR short position or more broadly if they decide not to rebalance their portfolios leaving them longer equities and shorter EUR. This is likely as momentum trading is alive and well."

"Risk management is probably kicking in. With the threat of ECB QE and negative rates in the front end of treasuries in Germany or France, reserve managers with risk averse profiles will likely be extending duration as much as they can in EUR, not buying and even selling to some very mild extend."

"This is precisely what the ECB is targeting via negative rates a weaker EUR. If risk management does kick in, the demand for EURUDF between 1.32 and 1.30 is a lot weaker than anyone thought as mean reversion behaviour at cheaper levels of EURUSD fails to kick in. Month-end should be the revealing moment."

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