Risks likely increased against EUR/USD parity by year end

EUR/USD is projected at parity by end-2015 for now. However, upside risks to this projection have increased notably following the CNY devaluation. The market turmoil has triggered an unwinding of risk positions, which has benefited the Euro as it has become a funding currency. 

The market has also priced out a September Fed hike. It will be reconsidered after the latest market turmoil is behind. The risks to this projection will affect only the timing, rather than the end point. 

"Even if EUR/USD does not reach parity this year, it will be well below the current level by end 2015. If the Fed does not hike this year and/or the ECB sends mixed messages following its new macro projections in the September meeting, EUR/USD could move again to 1.15 or even higher. Negative developments in China will continue supporting the EUR in the short term", says Bank of America.