EUR/USD: Are we heading for 1.12 in the short term? (Rabobank)

Rabobank suggests that since the Euro faces its own share of economic and political risks, it is still possible that the EUR/USD could return to the 1.12 area within 3 months.

"Since the beginning of this year, economists' hopes for a recovery in German growth have gradually been eroded. In the second half of 2018, Germany hardly experienced any growth at all.

There is considerable concern that the United States could potentially open the door to more tariffs on imports of European motor vehicles to which Germany would be particularly sensitive. The German car lobby has backed down, as has Chancellor Merkel. According to the markets, the ECB would be more likely to use additional liquidities to support economic activity in the coming years.

While the EUR recovered against the USD yesterday morning after retreating to the 1.1234 level at the end of last week, we continue to consider the single currency vulnerable.

It is not only changes in market views regarding the ECB's policy that could harm the EUR/USD in the coming weeks. Spanish politics are once again in a state of upheaval. It seems likely that after the next parliamentary elections, the government will adopt a tougher approach towards the Catalan separatists, which suggests a risk of rising tensions.

Also, it will be necessary to find a replacement for the President of the ECB, Draghi, this year. Faced with this level of uncertainty, we believe that the EUR/USD could reverse to 1.12 over a 3-month timespan."