EUR: Back to 0.95 soon?

There are no major market-moving data releases in the eurozone this week,
although Friday’s trade figures for August will be quite interesting to watch, and
may trigger some market reaction. A trade surplus of €20bn per month turned into
a deficit of around €40bn in July due to the rise in energy prices: our economists
expect this deficit to have widened to €45bn in August.
This is a testament to how the energy crisis is forcing a radical shift in the exportoriented economic framework of the eurozone, a theme – among others – that in
our view will prevent a rapid return to above-parity levels in EUR/USD. After all, our
BEER FX equilibrium model has consistently shown that the EZ-US terms of trade
(price of exports divided by price of imports) differential is the primary determinant
of real EUR/USD medium-term swings, and currently shows that the pair is not
undervalued.
On the ECB side, expect a plethora of speakers this week. President Christine
Lagarde is scheduled to speak on Wednesday, but we’ll hear from Mario Centeno,
Pablo de Cos and the chief economist Philip Lane today. Like the Fed, it’s hard to
imagine the ECB would want to radically change its hawkish rhetoric at this stage.
But unlike the Fed, tightening by the ECB is not helping its domestic currency, and
we see EUR/USD staying offered into the 0.9540 September lows this week.

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