Capital account flow = euro pressure

Although the Eurozone (EZ) current account surplus is moving higher, the flows on the capital account side are negative. The deployment of sovereign bond QE by the ECB, which should commence this week, will reinforce these outflows. The ECB’s decision could spark some near-term currency volatility, as the market digests the minutiae of the package, but we are sticking to the conviction that the euro will be at parity to the US dollar before the end of this year.

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