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In the view of the analysts at Societe Generale, the path of least resistance for EUR/USD is to the upside unless concerns over the US election and Eurozone growth prospects return.

Key quotes

“ECB Chief Economist Phillip Lane said that ‘the currency ‘feeds into our global and European forecasts and that in turn does feed into our monetary policy settings’.

The timing is good – intervention, verbal or otherwise, works best when the market is over-positioned, which is definitely the case today. But, the implicit threat is empty. Partly, because the EUR/USD is merely back to its average level since 1999, so it’s only over-stretched, in the short term. And because the ECB may not be able to ease in a way that weakens the euro.

In the meantime, maybe an over-stretched market, and perhaps a rethink on relative growth prospects or even a rethink on the odds of President Trump being re-elected, will trigger a decent EUR/USD correction (to 1.17?) But will be a buyer if it does, looking for a move into a 1.25-1.35 range on a 2-3-year horizon.”

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