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Georgette Boele, Research Analyst at ABN AMRO, expects the EUR/USD pair to set a bottom above 1.1301 levels.

Key Quotes

“Over recent weeks, three different drivers have left their mark on EUR/USD. For a start, concerns about the Italian budget target for 2019 and the tensions between Italy and the European Commission and within the Italian government have resulted in a wider 10y government bond spread between Italy and Germany. This has weighed on the euro.”

“Moreover, some dovish Fed officials have sounded more hawkish. This and higher oil prices have resulted in higher 10y US Treasury yields. In turn, the US dollar has received support from this across the board (the yen has been an exception, strengthening on the back of haven demand amid weakness in equity markets). These factors have driven EUR/USD below 1.15, taking out the technical support level at 1.1460.”

“We expect the upside in the US dollar to be limited though. We think that 10y US yields are in the process of peaking and we also expect US growth momentum to peak this year.”

“Our expectation for three further Fed rate hikes are close to being priced in. In short, we doubt the environment can get more supportive for the US dollar.”

“Moreover, we don’t expect that tensions between Italy and European Commission will get completely out of control, resulting in a sharp increase in 10y yield spread between Italy and Germany. All told, we expect EUR/USD to set a bottom above 1.1301, which is the previous low set in August.”