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#1 22-01-2019 08:58:11

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EUR/USD: euro will likely remain heavy in the coming weeks

EUR/USD: the euro will likely remain heavy on the forex in the coming weeks (Rabobank)

Rabobank believes that the short-term risks favour a decline of the EUR/USD on the forex.

"In the last few weeks of 2018, there were many reasons why USD bulls have rethought their positions. The market valuation of the outlook for the US economy and the Fed's interest rate trajectory were then significantly adjusted. Compared to its peak in mid-December and its low in mid-January, the DXY dollar index fell by about 2.8%. Since then, the dollar has gained ground and we think this is partly due to the negative revaluation of the euro's fundamentals and those of several other G10 currencies.

It's not just the German data that has disappointed recently. Italian production figures and industrial orders disappointed and data from French production was also a "downish" surprise. It may be too early to draw strong conclusions about the impact of trade wars on the euro area economy, but investors will probably also weigh down on these risks.

In addition, it seems highly unlikely that France's President Macron can continue his reformist programme given the scale of the silly demonstrations in France, while the proximity of the spring European parliamentary elections will probably have the effect that investors worry about a new wave of populism in the region. In the absence of better euro area data, we expect the euro to continue struggling to generate significant upward momentum against the US dollar.

Given that ECB and Fed policies will be dependent on data in the coming month, we continue to expect the USD and the EUR to remain in competition in the coming week.

Our 1-month forecast remains at 1.14 for the EUR/USD, although we have not ruled out the possibility of a decline to 1.12 over a three-month period, given the possibility of rising political risks in the euro zone in the spring.

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



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