US fiscal policy is turning tighter and unconventional monetary policy will be eased further. That supports USD weakness whilst no stimulus agreement would send the USD sharply lower, according to economists at ANZ Bank who forecast EUR/USD at 1.21 by end-2020.
Key quotes
“In essence, fiscal policy is turning tighter, and over time we think its emphasis will change from emergency programs, to areas of growth (digital, environment, infrastructure). Against the uncertainty of the coming election and expectations of further Fed easing in the fall, the backdrop favours weakness into year-end.”
“We are forecasting a move into a 1.20-1.25 trading range for EUR/USD with a year-end spot target of 1.21. However, we realise that if Congress fails to agree a package, that could weigh heavily on the USD in the short term. In that case, more dynamic losses could occur, possibly forcing a move into a 1.25-1.30 range. For the moment, we view retracements as buying opportunities.”