EUR/USD to trade within 1.16-1.20 range in the coming months – Rabobank

The USD has reclaimed some of the ground lost last week in the wake of the Biden election as the dust settles on post-election positioning. While the fundamental backdrop may suggest less reason to buy the safe-haven USD, the market is still long of the EURs and going into next month’s European Cental Bank (ECB) meeting, economists at Rabobank expect that confidence in that position will be tested.

Key quotes

“The combination of cheap money and vaccine hopes is likely to allow for decent levels of risk appetite and, while there are still risks on the horizon, we have curtailed our expectations for another round of USD strength and revised up our three-month EUR/USD forecast to 1.17 from 1.16 and our 6 mth forecast to 1.18 from 1.14.”

“The market built significant long positions in the EUR in the spring and summer on the view that the EU had taken a step towards a more coordinated fiscal policy and on the view that the ECB was determined to stamp out talk of fragmentation. These positions have been pared back but given that Europe is suffering substantially from a second wave and is facing a double-dip is economic output in Q4, we see upside potential from the EUR as being fairly limited particularly ahead of the December ECB meeting.”

“On September 1 comments from ECB Chief economists made it clear that he was concerned about the summer’s rise in the value of the EUR and the rally in EUR/USD stopped short at 1.20. We still see this area as marking strong psychological resistance for EUR/USD and would expect the currency pair to trade mostly in the 1.20 to 1.16 range in the months ahead.”