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During the course of September EUR/USD has moved as high as 1.1917 and as low as 1.1612. According to economists at Rabobank, there are sufficient negative headlines for the market to cover short USD positions going into Q4 and question their EUR longs.

Key quotes

“The fundamentals behind the USD have certainly altered hugely since the start of the crisis. In particular the extension of the Fed’s temporary USD liquidity swap lines and the FIMA repo facilities suggest that panic buying of USD is unlikely to again reach the frantic levels seen in March in the foreseeable future. That said, the panic buying of the USD in March demonstrated the greenback’s role as a safe-haven for many investors. In turn, this suggests that further sharp dips in risk appetite are still likely to at least trigger bouts of USD short-covering.”

“The prospect of a contested US election comes at a time when the market is becoming accustomed that some of the restrictions linked with COVID-19 will be in place for longer than perhaps had been assumed at the start of the crisis. These restrictions threaten to be a drag on the global economic recovery, which should force some investors to question their positions in risky assets. Simultaneous continued tensions between the US and China may also threaten the recent optimism of investors and result in a pullback towards safe-haven currencies such as the USD.”

“Signs of a second wave of COVID-19 in Europe will be a setback to recovery hopes and, particularly if unemployment rates rise, anti-EU sentiment may re-emerge in some countries. We see scope for investors to take profits on long EUR positions in Q4 which would pave the way for a moderately softer tone in EUR/USD.  We see scope for a dip towards EUR/USD 1.16 on a three-month view.”