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EUR/USD could depreciate towards 1.20 by mid-2016 – Rabobank

FXStreet (Edinburgh) - Jane Foley, Senior Currency Strategist at Rabobank, sees the divergence in the Fed and the ECB as the main catalyst for the next leg lower in the pair.

Key Quotes

“It is our view that the Fed will keep interest rates at their record lows until the final quarter of next year based on moderate US inflation levels and a lack of momentum in wage growth”.

“If the market comes around to this view then USD bullishness will inevitably face a setback”.

“That said, the drop in the US budget deficit to just 2.9% of GDP coupled with a decline in the size of the US current account surplus are evidence of improving US fundamentals”.

“By contrast the inability of the core Eurozone economy to sustain upward growth momentum and the risk of additional policy accommodation from the ECB suggests that any upward corrections in EUR/USD should be capped”.

“Overall, we expect EUR/USD to continue trending lower though at a fairly moderate pace”.

“Our target is EUR/USD1.25 and we expect a move to 1.20 is an 18 mth horizon”.

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