Jane Foley, senior FX strategist at Rabobank, expects EUR to face difficulty in gaining traction vs. the USD in the months ahead because of the current downside risks to Eurozone growth and the political issues risks stemming from trade wars in addition to the European parliamentary elections.

Key Quotes

“It is our view that the Fed funds rate has probably already reached its peak for this cycle.  As this change in outlook impacted market positioning, EUR/USD trended higher from a low of around 1.1216 in November to around 1.1570 in early January.  Insofar as the market is no longer priced for further progressive tightening from the Fed, it stands to reason that the USD will benefits from better than expected US economic data.  It is also likely that the EUR/USD cross rate may be more vulnerable from poor news stemming from the Eurozone.”

“Having reached a high in the region of EUR/USD1.1570 in early January, the EUR has subsequently been undermined by weaker than expected Eurozone economic data.”

“The potential for political headwinds in the Eurozone this spring suggests there is scope for EUR/USD to push lower on a 3 to 6 month view. The market, however, will have to play this risk against the concern that the US economy could be showing more signs of slowing down as this year progresses.  While we continue to see scope that EUR/USD could see the 1.12 area again on a 3 to 6 month view, we maintain our view that the months ahead could bring plenty of opportunity for a sparring contest between the EUR and the USD with the cross rate potentially caught in choppy ranges for weeks at a time.”

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