EUR/USD: Risk of a slide to 1.05 on a three-month view  – Rabobank

According to analysts at Rabobank, the US dollar could continue to benefit on the coronavirus panic while the euro might suffer is Eurozone leaders failed to agree on a plan. They forecast EUR/USD at 1.05 in three months and at 1.10 in a year. 

Key Quotes: 

“In the years since the global financial crisis the amount of USD-denominated debt issued by foreigners has increased and, as the Asian savings glut has expanded, so too has demand for USD assets. The panic buying of USDs in recent weeks has been subdued by the actions of the Federal Reserve and its huge step up in the provision of USDs. That said, with economic data only beginning to show a glimpse of the downturn that lies ahead, it is quite likely that the crisis will be playing out for some time. Consequently we expect to see further bouts of USD demand in weeks and months ahead.”

“The EUR held up relatively well against the surging USD in March. This may be related to the Eurozone’s large current account surplus and the likelihood that EUR based investors liquidated positions in high risk currencies. In the coming months politics could again play a role in the outlook for the common currency. A failure of Eurozone leaders to agree a mutually agreeable plan to relieve Italy of some of the costs associated with being the region’s epicenter of COVID-19 could widen the cracks in the region’s underdeveloped system of fiscal coordination and expose the EUR to downside pressure.”