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#1 05-11-2018 13:15:33

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EUR/USD: Rabobank's medium-term forecast for the euro-dollar

EUR/USD: Rabobank's medium-term forecast for the euro-dollar

In a note published today, Rabobank shares its opinion of the EUR/USD pair, and its short and medium term forecast for the currency pair:

"Strong US growth and Fed rate hike expectations remain factors that support the US dollar. As for the EUR/USD, a negative bias on the euro began to appear this summer and lasted until autumn.

As for next year, we are not convinced that the EUR will be in good enough shape to regain significant ground against the greenback. We continue to forecast a new low of 1.12 by the middle of next year and, although we expect the euro to rise in the second half of 2019, this forecast remains subject to several risks.

The implication is that the outlook for the EUR/USD is no longer just dominated by the strength of the dollar, but also by the factors specific to the EUR, which seem much weaker than in the second half of 2017.

That said, the outlook for the EUR next year is tarnished, as is that of the USD. Concerns that the Fed's hawkish policy could reverse the yield curve and create the conditions for the next US recession have been influencing the market for some time.

Even if policymakers avoid the recession, a slowdown in US economic growth and a cap on US rates seems likely in 2019. In addition, if growth slows, the growing US budget deficit will likely be increasingly taken into account.

For these reasons, we expect a modest appreciation of the EUR/USD in the second half of 2019. However, European policy and the potential risk of a more conservative ECB suggest that this view presents risks.

"Anything worth having is worth going for - all the way." - J.R. Ewing



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