EUR: Buy EUR Crosses. Bullish.
EUR remains our favourite currency to buy. The latest ECB meeting did not deliver QE extension as expected by most market participants and provided no guidance on the Bank's policy stance after March 2017, helping EUR to rally. While our economists expect the ECB to ease in December, the low-rate and flat-yield-curve environment in EMU prohibits further easing from translating into a weaker EUR. The flat yield curve also hurts EMU banks' profitability, reducing their willingness to take foreign FX risk onto their balance sheets, resulting in the lack of longterm capital exports to offset the inflows from the EMU's current account surplus. We like focusing on buying EUR crosses such as EURJPY, EURAUD and EURCAD.