EUR/USD: Barclays still believes pair will fall below parity, even if the decline may be slower than anticipated

In an analysis published today, Barclays confirms its bearish outlook on the EUR/USD, despite the recent increase:

"We have revised our forecasts to the upside to reflect the considerable changes in the overall economic outlook, and to take account of the EUR's resistance against the greenback, however we maintain our overall bearish outlook on the EUR/USD.

The adjustments in the Chinese exchange rate regime have raised concerns about Chinese growth, which increased the downside risks to inflation and growth in Europe. But it also appears to have delayed the expectations of a Fed rate hike.

These developments, combined with the resilience of the euro, have led to a tightening of financial conditions in the euro area, which should lead the ECB to respond with greater flexibility.

The actions of the ECB will therefore result in a further decline of the EUR, reminding the markets that Europe's recovery is fragile compared to other economies in the G10, but the decline could be slower than we had previously anticipated.

We now expect a decline of the EUR/USD to 1.03 by the end of the year and a fall below parity by Q2 2016.