EUR/USD: fundamental analysis suggests that the euro is over-valued (Westpac)

Westpac suggests that the EUR/USD is currently over-valued on the forex.

"The EUR/USD may struggle to benefit from dollar declines.

In any case, the Fed is likely to offer more rate hikes in 2019 than currently anticipated by prices (around +25 points), ensuring that the EUR/USD equilibrium price continues to decline.

We believe that the EUR/USD's short-term equilibrium price (based on short-term and long-term ZE-US spreads in core countries, peripheral spreads and Brent oil) is 1.0725, leaving the EUR/USD at 5.7% above its fundamental value.

In terms of the near future, Italian leaders have shown signs of appeasement regarding the budget, which could tighten spreads and raise the fundamental value of the EUR/USD.

With the EUR/USD over-valued and upside pressures on the equilibrium rate expected to hold, it is unclear whether the EUR/USD can offer a sustained rally."