EUR can rally towards 1.25 levels by summer 2018 - ING

Analysts at ING point out that 2017 has seen the return of a strong EUR - with its comeback driven by both the start of ECB policy normalisation and positive sentiment over what the Merkel-Macron axis could mean for the future of the Eurozone.

Key Quotes

“These two forces have worked together to make the EUR fundamentally 'Harder, Better, Faster, Stronger' (Kanye West). And our message to investors in 2018 is to embrace the strong euro; the next major catalyst for a move higher will be when markets position for higher ECB deposit rates - and this story could see EUR/USD rallying to 1.25 by summer 2018.”

“But equally, with "mo' money" comes "mo' problems" – and a stronger euro doesn't come without any economic consequences for European policymakers. Our estimates suggest that only a sharp rise in EUR/USD above 1.25 over a short period of time (say 1Q18) would test the ECB's 'pain threshold'. This scenario, however, would be unlikely in the absence of any disorderly Eurozone bond market moves or an externally driven downturn in the global risk environment.”