Forex Flash: EUR/USD to target 1.3000 in three-month window – UBS

Alongside the current account data, the ECB is also due to release December's portfolio flow data today. The creation of the ECB's OMT program has had a stabilizing effect on sovereign bond markets, which triggered a return of exiled capital in November. In fact portfolio inflows are now much larger than those associated with the current account surplus. We expect this pattern to continue in December as memories of the crisis fade a little further.

However, “when netted-off against outflows by Eurozone residents, the portfolio effect on the currency is more muted than it first appears. There has been no repeat of the enormous repatriation seen in Q4 2008, and Eurozone investors were net buyers of overseas assets in November. Also, like the temporary current account surplus, the return of portfolio inflows can only go so far. Ultimately, we expect broad-based dollar strength to come through later this year, taking the EUR/USD back down to 1.3000 in 3m.” writes Research Analyst Gareth Berry at UBS.