Euro: Forecasts from eight major banks, on parity watch over the coming months

As we enter the second half of the year, some analysts have updated their euro forecasts. Here you can find the expectations of eight major banks regarding the common currency’s outlook for the coming months.

TDS

“The EUR's near-term outlook remains challenging, reflecting, in part, the sluggish backdrop for risk sentiment. The wall of worry around European and global growth risks remains elevated, while China is only starting to emerge from its growth slumber. Oil prices are another key factor to watch in the months ahead, where lower oil would benefit EUR. We expect EUR/USD to hold the 1.03/1.07 range before pushing higher in H2.”

CIBC

“As the ECB looks to tighten policy, fragmentation risk, namely yields in peripheral markets blowing out, risking debt sustainability, remain a concern. Avoidance of another round of debt concerns, allied to avoidance of fragmentation risks, will help limit near-term EUR downside against a USD which currently remains risk and rate supported. Over the medium-run, expect diversification interest to sustain support EUR valuations.”

MUFG

“We have lowered our Q3 EUR/USD forecast notably (from 1.0600) and consider a breach of parity this quarter as now a very plausible risk. Assuming risk conditions slowly turn more favourable and inflation risks recede, EUR/USD has greater scope to move higher beyond Q3/Q4.”

Credit Suisse

“Despite ongoing EUR problems, EUR/USD downside may lose momentum in Q3 specifically. The possibility of a) an anti-fragmentation plan at the 21 Jul ECB and b) a 50 bps rate hike at the 4 Sep ECB allow room for markets to anticipate supportive developments. The summer months are likely to see ongoing post-pandemic re-opening momentum too. But we look to take advantage of phases of EUR/USD strength towards 1.08 to establish strategic shorts, looking for a new test of 1.0340, and then parity. By Q4, the market will be looking ahead to risks such as winter energy shortages, Italian ‘23 elections and weaker growth/rising fragmentation risks.”

Commerzbank

“At the moment, the euro is being burdened by a number of special factors: The security of energy supplies in Europe is at risk because Russia can no longer be regarded as a reliable supplier. This results in recession risks. The expected ECB interest rate hikes increase "fragmentation" risks. While the ECB has announced instruments that address this risk, it is not yet clear whether instruments will be found that do not at the same time complicate the fight against inflation. In our central scenario, these risks do not materialize. At the same time, we expect recession risks in the USA to increase visibly. We, therefore, expect EUR/USD to recover slightly by the end of the year. In the coming year the US recession, the Fed's interest rate cuts, the relatively robust euro area economy, and the fact that the ECB is probably not going to follow the Fed’s easing cycle, should contribute to EUR/USD strength.”

Nordea

“Expectations on the ECB have risen but we still have our doubts on how much the ECB will be able to raise rates considering the energy risks and the more vulnerable economic backdrop in the southern countries. The latest shift from most other G10 central banks to a more aggressive policy will likely keep markets volatile and support our view that EUR/USD will move down to parity sometime in the second half of this year.”

ING

“Now that expected volatility is higher after recent developments, we can say that the FX options market reasonably expects EUR/USD to trade in a 1.00-1.12 range over the next six months. In other words, EUR/USD is now a one standard deviation proposition and should not be a shock. What seems clear to us is that FX volatility will still stay high this summer and the 1.05-1.10 EUR/USD range we had foreseen perhaps now becomes a 1.00-1.10 range.”

Danske Bank

“The large negative terms-of-trade shock to Europe vs US, a further cyclical weakening among trading partners, the coordinated tightening of global financial conditions, broadening USD strength and downside risk to the euro area makes us keep our focus on EUR/USD moving still lower (targeting 1.00) – a view not shared by the consensus.”