From: Daniel Sabba

From: Daniel Sabba To: Icevacation®gmail.comm <[email protected]> CC: Vatic Ste riiar <m r> , Ariane Dwyer < >, Paul Morris Subject: FW: Change in EURJUSD forecast (parity this year) (C) Date: Tuc, 10 Mar 2015 20:28:42 +0000 Attachments: curoglut_trillions_of ourtflows.pdf Inline-Images: ATT00003.gif; ATT00004.gif; ATT00005.gif; ATT00006.gif; ATT00007.gif; ATT00008.gif; ATT00009.gif; ATT00010.gif Classification: Confidential Jeffrey —see attached and below per our conversation. Regards, Daniel From: George Saravelos Sent: Tuesday, March 10, 2015 11:29 AM To: GFX Management Team Subject: Change in EUFt/USD forecast (parity this year) Hi everyone, I just wanted to highlight that we have changed DB's official EUR/USD forecasts for this and the following years. The year-end forecast is now parity (1.00) to be followed by 90 cents next year and 85 cents in 2017. The rationale is a continuation of the Euroglut theme we have been talking about over the last few months: record European outflows to the rest of the world on the back of a structural change to European asset allocation. In the piece below we argue that Europe has to transform itself into a net creditor nation by buying a lot more foreign assets. We estimate this requires at least 4 trillion euros of additional outflows. In turn. European buying of foreign assets is likely to mean global yield curves stay very low and very fiat - a new 'bond conundrum'. Full piece is below. George George Saravelos FX and Rates Strategy Deutsche Bank AG. Faille London Global Petertitnclv Payton --- Forwarded by George Saravelosrdb<dbcom on 1W03/2015 15:22 -- From: George Saravetoskibicbcom To: Date: 10/031201513:47 Subject. ---Euroglut here to slay. trillions of European OUIROWE logo EFTA01196831 Deutsche Bank Markets Research Global Foreign Exchange Special Report Date FX Spot 9 March 2015 Last year we introduced the Euroglut concept: the idea that the Euro-area's huge current account surplus reflects a very large pool of excess savings that will have a major impact on global asset prices for the rest of this decade. Combined with ECB quantitative easing and negative rates we argued that this surplus of savings would lead to large-scale capital flight from Europe causing a collapse in the euro and exceptionally depressed global bond yields. With European portfolio outflows currently running at record highs, this piece now asks: Can outflows continue? How big will they be? The answer to this question is critical: the greater the European outflows, the more the euro can weaken and the lower global bond yields can stay. We answer the outflows question by modelling the Euro-area's net international investment position (NIIP). We argue that Europeans now have to become net creditors to the rest of the world and that the NIIP needs to rise from -10% of GDP to at least 30%. As such, we estimate that Euroglut requires net European capital outflows of at least 4 trillion euros. This conclusion leads to three investment implications. First, we continue to expect broad-based euro weakness. European outflows have been even bigger than our initial (high) expectations, so we are revising our EUR/USD forecasts lower. We now foresee a move down to 1.00 by the end of the year, 90 cents by 2016 and a new cycle low of 85 cents by 2017. Second, we expect continued European inflows into foreign assets, particularly fixed income. Our earlier work demonstrated that the primary destination of European outflows will be core fixed income markets in the rest of the world, and evidence over the last few months supports these trends: most European outflows are going to the US, UK and Canada. These flows should keep global yield curves low and flat. Finally, we see Euroglut as continuing to constrain monetary policy across the European continent for the foreseeable future. Since our paper in September central banks in Switzerland, Norway, Sweden, Denmark, the Czech Republic and Poland have all cased. These countries run large current account surpluses. Through a unique mix of huge excess savings and structurally low yields, the entire European continent will continue to he a major source of global imbalances for the rest of this decade. 'Trillions of European outflows to come tolloo 4 -10 -1- 1 .0 0 PTOIKOKI outflows required for Elmo an to reach new NIP equeltn um EURcieorio.ww 10% Tbecrtocal mole, Soto,. Dorfrolo ant 40 Ccapararnie Panel °Dung monsoons benclonarlis Consenowe scent° 48 EUR depreoaes 20% IlteoreOcal Canparine Pawl model omen nogressions beeidienarts EFTA01196832 'Figure 3: Portfolio outflows at record highs Oa, sanely —Em sea net patkaeinficen 200 150 100 50 0 -50 -100 It \v J -150 2000 3:02 2004 200E 3238 2010 2012 3314 Som e Doutscholieg. Era 'Figure 9: Illustrative regression analysis -10% -5% 0% 5% 10% 15% 20% Swam DassereAmet /bar George Saravelos FX and Rates Strategy Winchester Street EC2N 2DB London. United Kingdom Fkil401.41T PeMPMek, 'Figure 7. Only Eurozone has stock-flow mismatch in GI0 ----------- ism NIP as %d .4 100% 50% a 1: Nauss ------------- -XXI% 4% 4% 4% .254 =0.5203 Conant went as % d00P 0% 2% 1% 8% 8% Some CleutroW Set Hint Not sad.' ellwried b hiain cooed atkin. w roianceir3 I ' Figure 12: NIIP will not stabilize for years depending on size of Euroglut ten 4000 21303 2030 1.000 .1.000 -2030 1999 2332 MN 2021 PMIOSCI POP Obbilly • beans sorts% Sweat drab* Bank comma or *Arms 2011 mu mu mm mn 2026 MM MM This communication may contain confidential and/or privileged information. If you are not the intended recipient (or have received this communication in error) please notify the sender immediately and destroy this communication. Any unauthorized copying, disclosure or distribution of the material in this communication is strictly forbidden. Deutsche Bank does not render legal or tax advice, and the information contained in this communication should not be regarded as such. EFTA01196833