EUR/USD: Euro is far from being out of the woods – Rabobank

Analysts from Rabobank revised lower their one and three months forecast for the EUR/USD pair to 1.03, looking at a recovery later, with the possibility of climbing back to 1.10 on a twelve months perspective. They warn the benefit to the euro from the hawkish European Central Bank (ECB) may be short-lived. 

Key Quotes: 

“USD strength has already been a major factor in pushing EUR/USD back to levels last traded in 2017. Whether or not USD strength means that EUR/USD will move to parity in the coming months, remains to some extent dependent on the fundamental backdrop in the Eurozone and on EU policy.”

“The appearance of hawkish ECB rhetoric in the middle of last month raised the possibility of a rate hike as soon as July.  That said, the benefit to the EUR from a hawkish ECB may be short-lived if investors are simultaneously concerned about recession risks in the Eurozone.”

“Although EUR/USD has pulled away from its recent lows today, the uncertainties about energy security and recession in the Eurozone suggest that the EUR is far from being out of the woods.  Simultaneously, we expect safe haven flow to keep the USD well under-pinned.  The aggressive pace of Fed policy tightening has underpinned the risks of a 2023 US recession.  Previously we has anticipated that that would be sufficient to weaken the greenback significantly into the end of this year across the board.  However, with the outlook for global growth also undermined by risks from slower growth in China and the Eurozone we anticipate that riskier currencies may remain on the back foot unless the Fed tightening cycle draws to a close.  This suggests scope for the USD to remain on the front foot for some months to come.”

“We are revising lower our 1 and 3 month EUR/USD forecasts to 1.03 and see some scope for a move to 1.05 on a 6 month view with the USD only retreating back to 1.10 on a 12 month view.”