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EUR/USD: Upside could be limited in coming months - Rabobank

Analysts at Rabobank, expect choppy trading in the EUR/USD pair in the months ahead. 

Key Quotes: 

“In the past few weeks a lot of attention has been paid by investors to changes in dollar fundamentals. Relative to November there has been a significant alteration in expectations regarding the likely pace of Fed rate hikes this year. Coincident with this there has also been a distinct drop in confidence about the outlook for growth in the US. Although the release of the December US labour data surpassed expectations, there have been plenty less optimistic data releases in recent weeks which has resulted in a palpable sense of scepticism in the market regarding the growth potential in the US over the next year or two. Against this backdrop it is easy to point out that the outlook for the USD has soured. That said, less attention is being paid by the market to EUR specific news. We would argue that the Eurozone has its own set of potential risks in the month ahead. Consequently upside potential for EUR/USD could be limited in the coming months despite the worsened outlook for the greenback.”

“A continuation of soggy data release from Germany and the Eurozone has the capacity to restrain the EUR this year. Given the potential threat coming from poor data investors will be speculating about the possibility of a watering down of forward guidance from the ECB. Later this week the ECB will release the summary of its latest ECB policy meeting which will be dissection carefully.”

“It is possible that this year investors will have to watch the EU be forced to address whether its austerity led mantra is still suitable or palatable for the electorate. Against this backdrop there is still risk that EUR/USD could trade lower into the spring at the very least upside potential is likely to be constrained. Given the risks the both the USD and the EUR this year we expect choppy trading to persist in the months ahead.”

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