Search ForexCrunch

EUR/USD paused its fall and is looking for a direction while USD/JPY is going vertical. These major pairs may have a longer way to go in favor of the dollar.

The team at Goldman Sachs looks at the bigger picture:

Here is their view, courtesy of eFXnews:

USD strength has been a feature of our views in 2014 and its continuation, particularly against G10, arguably remains our strongest asset market view looking through 2015. Within that view, continued declines in the EUR/$ rate are the single most important element, but we expect further meaningful weakness in the JPY as well. We think the combination of widening 2-year rate differentials, downward pressure on oil prices and continued resilience in the US growth picture all support that view.

Given that the USD was among the strongest global currencies in 2014, that the view that USD strength will continue is now quite well-subscribed and that forward markets already price a significant widening in US policy rates versus many others, the key question is why it should continue. We think rate differentials have scope to widen further still, even versus the forward pricing, and if the ECB and BoJ are successful in raising inflationary expectations, as they are trying to do, real rates may move in the USD’s favour even without much movement in the nominal structure.

We forecast EUR/$ at 1.15 and $/JPY at  130 by end-2015 (moving to parity and 140 in 2017). The bigger story is that we are in a multi-year phase of USD recovery, as the forces that drove the long period of USD weakness reverse, and that the market may be underestimating the scope and persistence of that trend. Relative to a long historical perspective, the USD strength so far looks modest.”

For lots  more FX trades from major banks, sign up to eFXplus

By signing up to eFXplus via the link above, you are directly supporting  Forex Crunch.