EUR/USD: SEEN AT 1.05 IN 3 MONTHS – RABOBANK

Analyst at Rabobank maintain their one and three month forecasts for the EUR/USD pair at 1.06 and 1.05 respectively, but they tweaked their six and 12-month forecast, pushing them slightly higher.

“The greenback's safe haven quality stems from its position as the dominant currency in the global payment system. This means that crisis can trigger USD hoarding behaviour. These should have been assuaged by the Fed's announcement last weekend that it had put in place daily swap line with five other major central banks. These could run to the end of next month. In our view, this action by the Fed was instrumental in allowing EUR/USD to trend higher at the start of the week and break (temporarily) the key 1.08 resistance level. This measure, however, is unlikely to totally offset safe haven demand for the greenback if confidence in banks fall further.”

“In view of prevailing tensions we have not at this time revised our forecast of a dip in EUR/USD to 1.05 on a 3 month view, although we are clearly watching events carefully. However, have raised our 6-month forecast from EUR/USD1.03 to 1.06 which also reflects a relatively firm profile for the USD. While calmer waters in this time frame would lessen safe haven USD demand, in tune with our central view this would facilitate the pricing out of Fed rate cuts which would provide the greenback with support.”