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According to analysts from Rabobank, the fundamentals driving both the euro and the US dollar have altered significantly since March, but even so, there are a number of risks that could be a setback to the European currency or trigger a bout of short-covering in the dollar. They have pushed up their forecasts for EUR/USD as they see risk of a dip from current levels in a three to six months horizon.

Key Quotes: 

“Whether it be disappointment over the lack of stimulus signals from the Fed and Congress or the reluctance of ECB President Lagarde to verbally intervene against the strength of the single currency, EUR/USD has had a lot to digest in the past couple of weeks. Compared with early spring it is clear that the EUR’s fundamentals have improved while at the same time the USD’s fundamentals have weakened. That said, with investors now long of EURs and short of USDs there is the potential for a correction that would take EUR/USD lower in the months ahead.”

“We have tweaked our EUR/USD forecasts pushing them higher to better recognize the structural changes that have taken place since the spring. However, we continue to expect a dip lower in EUR/USD back towards 1.16 on a 3 month view and 1.14 in 6 months.”