SocGen: Euro / USD and currency wars: What is it this time?

“If the EUR / USD pair on Friday closes below 1.2950, it will be the ninth consecutive weekly close below. The longest decline of the euro in 2010 was six weeks, and in 2008 – only five. Not surprisingly, will be stable if the closing of short positions at these levels, but it does not affect the trend reversal.

Raising rates in the United States has enabled the ECB to start a policy of “de facto” of the weak euro, which took advantage of Mario Draghi.

First, capital flows peaked … All in all, a net portfolio balance was € 107 billion until June, you can add the outflow of direct investments in the amount of € 53.4 billion and a current account surplus, € 226.8 billion, which would give us a “base balance “, amounting to € 280.4 billion, but all indications are that it has reached its peak.
Secondly, the dynamics of interest rates today are much more favorable to the weakening euro … Draghi played a role in a low rate of the euro, but he managed to limit the expectations of rates, while in the United States, these expectations are beginning to rise.

If Draghi can keep things this way, and the market is the United States will continue to expect a tightening by the Fed in 2015, a further decline in the euro will have quite a lot of potential. Taking into account the fact that the negative deposit rates and redemption of securities backed by assets, may have only a limited impact on credit demand in the euro area, the weakening of the euro will be the main transmission mechanism of a soft monetary policy in the region. “- Experts say SocGen.