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Measured from June 18 all G10 currencies with the exception of the JPY have gained some ground vs. the USD. The EUR, however, finds itself towards the bottom of the performance table in that time frame. In the view of Jane Foley Senior, FX Strategist at Rabobank, this is likely a function of various factors.
EUR/USD one-month forecast lowered to 1.19
“Firstly, the market had been positioned long of the single currency on optimism regarding the vaccine catch up trade in the region. Forecasts that the delta variant of Covid could spread through Europe in the summer months could now be undermining confidence in this trade. Secondly, while there was a modest pick-up in German 10 yr breakevens on Friday, the market’s focus in terms of inflationary impulse and central bank reaction remains squarely on the US. Thirdly, the failure of EUR/USD to hold levels above 1.1950 last week will have undermined the resolve of EUR bulls.”
“We have lowered our long held 1 mth EUR/USD forecast from 1.20 to 1.19. Our 3mth and 6 mth forecasts remain unaltered at 1.19 and 1.17 respectively.
“Even though it will take a while for the data fog to clear, the June FOMC let the genie out of the bag about the possibility of a Fed rate hike as early as 2022. Even though this is still a minority view it marked a notable shift from the FOMC’s March projections. Assuming the US data remains broadly supportive, we expect the USD to grind moderately higher vs. the EUR though the course of the year.”