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EUR/USD could test 1.05 in 3-month view – Rabobank

FXStreet (Edinburgh) - In the view of Senior Currency Strategist at Rabobank Jane Foley, spot could grind lower towards the 1.05 handle in a 3-month horizon.

Key Quotes

“Very low ECB interest rates have meant that the EUR functions as a funding currency for carry trades. These trades, however, only work well when risk appetite is at elevated levels”.

“During the spring and summer this year the EUR was supported as carry trades were unwound. Although risk appetite improved in October making way for a softer EUR, fears that Chinese growth concerns could return or that political issues linked with Portugal or Greece could make a re-entry suggest that the carry trade could have a bumpy year and that the will to hold hefty EUR shorts may be lacking”.

“Following last week’s strong US payrolls release we brought forward our EUR/USD1.05 target to a 3 mth forecast and now see risk that EUR/USD will move towards 1.04 by the middle of next year”.

“That said we remain reluctant to put parity on the forecast table and will likely refrain from refreshing this view at least ahead of the outcomes of the December ECB and Federal Reserve policy meetings”.

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