📝 Expect EUR/USD to Be Trading Lower At Year End: Rabobank

While Southern European countries have remained more buoyant, in part due to strength in their services sectors, economic headwinds for the bloc are rising as credit conditions continue to tighten. CFTC speculators’ data suggest that the net level of EUR long positions has been pared back from its recent peak, though it remains high. Reflecting economic risks, it is our house view that there will be no ECB rate hike in September, If it is assumed that the ECB has hit its peak policy rate by September, reasons to hold EUR longs could be diminishing by late summer. This suggests the approach of headwinds for EUR/USD. Signs of disinflation in the US and a high level of scepticism about the ability of the Fed to hike rates beyond the July meeting, suggest that a soft USD is likely to prevail in the near-term. That said, signs that the ECB’s rate hike cycle is moving towards its peak suggests that EUR/USD could struggle to make further gains beyond the summer season. Additionally, if US recession fears strengthen into the end of the year, the USD could benefit from broad-based support. We have revised down our USD forecasts across the board on a 1-month view in response to the disinflationary signals in the US. However, in view of our house forecasts surrounding US recession risks, and in consideration of the economic headwinds facing the Eurozone, we see EUR/USD trading lower into year end and through the early part of 2024.- Rabobank