EUR/USD: Fundamentals not strong enough for investors to choose EUR over USD - Rabobank
|Analysts from Rabobank continues to see the EUR/USD pair moving lower. Lately the downside in the pair has been limited probably because the market is already short of EUR according to them.
Key Quotes:
“Although there has been a slight downward bias in EUR/USD since the start of the year, over the past month or so the currency pair has been stuck between its April low near 1.112 and the 1.127 area. Our forecast of a move to the EUR/USD 1.10 area on a 3 to 6 month view, remain towards the bottom of the market consensus. While numerically 1.10 is not far away, psychologically it would represent a fairly significant move.”
“One explanation for the lack of progress on the downside for EUR/USD is the likelihood that the market is already short of EURs.”
“Shorts have been building since the start of the year against a backdrop of weakness in the German manufacturing sector, a dovish ECB and concerns about populism ahead of the European parliamentary elections. There is an argument in the market that the EUR could benefit from short covering going forward as the trade war between the US and China pushes investors into more neutral ground. In our view, the Eurozone’s fundamentals are currently not strong enough for investors to choose the EUR over and above the USD.”
“After months of worrying about the state of the German economy, the markets breathed a sigh of relief when the Q1 GDP data produced a 0.4% q/q gain. To be fair the strong labour market meant that German domestic consumption has consistently remained firm, but ongoing trade wars and slowing world growth had meant that there is still plenty for the German export sector to worry about.”
“Given that worries about growth can be overlaid with concerned about low policy rates and populism, we don’t see the EUR as picking up much of a safe haven bid in the coming months.”
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