Analysts at Rabobank continue to expect broad-based USD gains in the coming months and retain a forecast of EUR/USD at 1.12 on a 12 month view.
Key Quotes:
“On the back of the ECB’s dovish policy statement on rates on June 14, EUR/USD suffered one of its largest daily falls of recent years. The ECB may have provided the trigger for this move but we argue that several factors favouring the USD were already in place. Over the coming months we expect that much of the flow into the USD is likely to continue to be derived from emerging markets. That said, we continue to expect broad based USD gains and maintain the view that EUR/USD will trend down to the 1.12 area on a 12 mth view.”
“Technical indicators give credence to our outlook. After spending the first few months of the year trading sideways, EUR/USD broke decisively lower from the triangle pattern putting in motion a bearish scenario based on the assumption that a downside trend tends to be formed by three waves A-B-C.”
“We marked the sharp fall to 1.1510 as wave A which was followed by wave B to the recent high at 1.1851. It is worth noting that wave B was contained by a crucial pivot – the 38.2% Fibonacci retracement at 1.1855.”
“The June 14 drop in EUR/USD could be the beginning of wave C. A clear break below the May 29 low at 1.1510 would cement the downside bias underpinned by the prospects of the Fed raising interest rates further at the time when the ECB may not deliver its first hike until H2 2019. While wave C may extend as far as 1.10, the 61.8% Fibonacci extension of wave A at 1.1292 would be our initial target.”
“A strong rebound well above the 1.1851 high would cancel this bearish wave count forcing us to reassess the technical outlook for EUR/USD.”
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