EUR/USD: BNP Paribas says ECB will increase QE this week, targets 1.08 by end of year

"We believe that the EUR/USD will likely fall by the end of the year and we are targeting 1.08.

The main driver of our forecast is our expectation of a 0.25% rate increase by the Fed, which is not yet included in pricing. Furthermore, we expect monetary easing by the ECB this week. We expect an increase in QE via a 6-month extension of its period.

Given the large surplus in the current account balance, we would need substantial capital outflows at the financial account level to see a persistent decline in the euro on the forex. But these capital flows will be sensitive to risk sentiment. Note also that if expectations regarding appreciation of the euro retreat, capital outflows will probably be covered in the foreign exchange market." says the BNP bank.