EUR/USD set to head lower in months ahead - Rabobank

According to analysts from Rabobank, the EUR/USD pair will drop in the months ahead based mostly on a stronger US Dollar. 

Key Quotes: 

“The relief rally in the EUR that followed the news that EU leaders have reached a deal on migration at the June summit suggested that political anxiety had been a contributing factor behind the currency’s recent softness. Alternatively the rally could merely indicate that the single currency was ripe for a bout of short covering after its recent fall. Either way, it does not change our underlying view that EUR/USD is set to head lower in the months ahead based mostly on the back of broad based USD strength. Even though the USD is not always the most favoured safe haven currency, a significant part of the USD’s gain in recent months is a function of the souring of risk appetite. This has sparked a wave of outflows from emerging markets.”

“Given that interest rate differentials favour the USD vs. other G10 currencies, we maintain the view that USD strength will remain dominant and that EUR/USD will head towards the 1.12 area on a 12 month view.”

“Political headwinds lessen the chance that the EUR will adopt safe haven behaviours in the coming months.”

“Since the end of May EUR/USD has been reluctant to push below the 1.1510 area. Relief stemming from the EU summit suggests that this level may be further away than its seemed earlier in the week. However, now that both the core and headline reading of US PCE chain price inflation have reached the FOMC’s target, another rate rise seems very likely from the Fed in the coming months. Against this backdrop, we forecast a move to EUR/USD1.15 on a 3 month view and 1.12 in 12 months.”