EUR/USD topped 1.20 in late 2017 and seems to hold onto its gains. Can it continue even higher? Or will we see a significant drop beforehand? Here are two opposing opinions:
Here is their view, courtesy of eFXnews:
EUR/USD: It’s Only A Matter Of Time Before Making A Charge Towards 1.25 – ING
ING FX Strategy Research discusses the EUR outlook, and thinks that the pair is set for a stab towards 1.25 over the coming weeks in Q1.
“The EUR has started the new year pretty much where it left off – on the up and not shy of any positive catalysts.
These positive factors underpin our view for EUR/USD to move up to 1.25 in 2Q18. However, ahead of this, we do look for stability – not least because of a realisation that a sharp rally beyond 1.25 in 1Q18 would test the ECB’s ‘pain threshold’ and elicit a relatively dovish reaction from the central bank.
A reality check on EZ inflation data and Italian elections may implicitly help the ECB’s cause by holding EUR bulls at bay in 1Q18.
But EUR/USD making a charge towards 1.25 is merely a matter of time,” ING argues.
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EUR/USD: 4 Reasons For A Drop Towards 1.10 Before Higher – BofAML
Bank of America Merrill Lynch FX Strategy Research discusses EUR/USD outlook and argues that the risks are to the downside in H1 2018 on the following 4 factors :
“1- EUR/USD has overshot the data.
2- The market is long EUR and this position could be at risk.
3- We expect further Fed and ECB monetary policy divergence, which the market has yet to price for the Fed.
4- The US tax reform will support the USD through fiscal stimulus and profit repatriation; market expectations remain too pessimistic in our view,” BofAML argues.
U-shaped path for EUR/USD: “For H1, we expect EUR/USD to be primarily a USD trade, to a large extent driven by the impact from the US tax reform on the US economy and the FX and rates markets. In H2, we expect the ECB to start dominating as the main EUR driver.
We expect EUR/USD to weaken to 1.10 in Q1 2018, but then to gradually move towards its long-term equilibrium, 1.19 by end-2018 and 1.25 by end-2019,” BofAML projects.
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