Euro poised to rally to 1.40 against US dollar – BCA Research

According to Jeremie Peloso, Chief Europe Strategist at financial advisory firm BCA Research, the euro is in the early stages of a multi-year bull market that could eventually take EUR/USD to 1.40.

The expert does not rule out the likelihood of short-term consolidation after the euro's nearly 15% appreciation since January. Nevertheless, the long-term outlook remains positive. BCA expects EUR/USD to consolidate around 1.12 in summer and fall, and then resume the uptrend.

Structural factors will support its continued growth. The key driver is the growing pressure on the US balance of payments. The US current account deficit stands at 4.6% of GDP and the net international investment position (NIIP) has deteriorated to -91% of GDP.

Meanwhile, the eurozone is running a balance of payments surplus and positive NIIP, and macroeconomic indicators of the region are improving. According to Peloso, “the structural advantage of the euro over the dollar is growing.” Reforms in EU countries and renewed political momentum toward deeper integration are also boosting the euro's appeal, he summarizes.