EUR/USD has made a recovery of sorts, moving from the abyss of 1.1510. Can it go even higher?
Here is their view, courtesy of eFXdata:
TD Research discusses EUR/USD outlook and maintains a structural bullish view in the medium-term targeting a move to 1.28 by year-end.
“We flag a few medium-term drivers that underscore our upbeat view on the EURUSD in H2.
First, a significant driver of the EUR is the delta of the ECB’s balance sheet (against the Fed). The first chart shows our forecast versus the relative growth of the Fed/ECB balance sheet. The key question to consider is what the EUR’s fair value in the absence of emergency stimulus. With BS growth flat, we suspect this range is 1.25-1.30.
Second, the market has forgotten local inflation. Since January 2017, the EUR correlates positively with local 5y5y breakevens. This correlation suggests that the output gap is closing so the EUR can strengthen with improved fundamentals.
Taken together, we maintain our upbeat EUR profile, expecting a move to 1.27 by yearend,” TD argues.
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