The shared currency’s upside potential against the USD could be limited due to a combination of factors, Rabobank analysts think.
Key quotes
“Firstly the market built significant long positions in the EUR in the spring and summer on the view that the EU had taken a step towards a more coordinated fiscal policy and on signs that the ECB was determined to stamp out talk of fragmentation.”
“These positions have been pared back but given that Europe is suffering substantially from a second wave and is facing a double dip is economic output in Q4, we see upside potential from the EUR as being fairly limited particularly ahead of the December ECB meeting.”
“On September 1 comments from ECB Chief economist made it clear that he was concerned about the summer’s rise in the value of the EUR and the rally in EUR/USD stopped short at 1.20. We still see this area as marking strong psychological resistance for EUR/USD and would expect the currency pair to trade mostly in the 1.20 to 1.16 range in the months ahead. We have revised up our 3-month EUR/USD forecast to 1.17 from 1.16 and our 6-month forecast to 1.18 from 1.14.”
