Positive vaccine news has improved market sentiment over the last weeks, providing a boost to “risky currencies” against safe-havens like the USD. In the specific case of the euro, the Rabobank’s FX Strategy team, though, warns about an excess of optimism as, in their opinion, it is going to face headwinds.
Key quotes
“For many of the G10 crosses our forecasts still allow for a little backtracking of the recent USD sell-off on the 1 to 3-month view. This is on the view that it is likely to be a hard winter for many before distribution of the vaccine is rolled out and the global economy begins to draw out a new post-pandemic reality For the EUR, however, we have specific concerns that investors may be approaching the winter with too much optimism in the price.”
“Not only is more stimulus in store from the December ECB policy meeting which could weigh on the single currency, but EU budget concerns are again rising to the fore, Infighting within the EU could delay the rollout of the Recovery Fund at a time when there is an increased need for fiscal support in many European countries.”
“Faced with a period of inter-EU bickering on the budget and a possible delay on the Recovery Fund at a time when the pandemic is raging in the region, the EUR could be vulnerable. Given also the approach of the December ECB policy meeting, we see scope for a pullback towards EUR/USD1.17 on a 1-month view.”
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