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#1 23-05-2019 08:59:30

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EUR/USD: Rabobank explains in detail why it expects quick drop to 1.10

EUR/USD: Rabobank explains in detail why it expects a quick drop to 1.10

In a note sent to clients this week, Rabobank analysts continue to expect the EUR/USD pair to decline.

Recently, the pair's decline has been limited probably because the market is already strongly positioned for selling according to them.

"Although there has been a slight downward bias in the EUR/USD since the beginning of the year, in the last month or so, the currency pair has been blocked between its April low of around 1.112 and the 1.127 area. Our forecast of a movement towards the 1.10 zone within 3 to 6 months remains at the bottom of the market consensus.

Although the 1.10 figure is not very far from current prices, psychologically speaking, this would represent a significant step.

The lack of downward progress in the EUR/USD is due in particular to the probability that the market is already strongly positioned for euro selling.

Since the beginning of 2019, short positions have been accumulating in a context of German manufacturing sector weakness, a dovish ECB and concerns about "populism" in the run-up to the European Parliament elections.

It remains possible that the euro may benefit from short-term hedging as the US-China trade war pushes investors to more neutral ground.

But in our view, the fundamentals of the euro zone are currently not strong enough for investors to choose the euro over the dollar in the context of the trade war.

After months of worrying about the state of the German economy, markets breathed a sigh of relief when GDP data for the first quarter showed a 0.4% gain compared to the first quarter.

However, since concerns about growth can be superimposed on concerns about low key rates and populism, we do not see the euro as a haven of peace in the coming months.

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



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