EUR/USD to retest its recent low in the 1.0350 area – Rabobank

The Federal Reserve could deliver a 75 basis points (bps) hike this week. Subsequently, the EUR/USD could test its year-to-date low of 1.0350, economists at Rabobank report.

US to see recession in 2023

“The US now has an inflation rate of 8.6% and over the past couple of sessions, speculation has been building that the Fed will be willing to up the ante at this week’s policy meeting. Expectations of a 75 bps hike have been on the rise for June and a more aggressive pace of rate hikes is now expected through the remainder of the year. The implication is that the USD could be stronger for longer.”

“We remain of the view that EUR/USD has the capacity to retest its recent low in the 1.0350 area and in line with this maintain a one and three-month forecast of EUR/USD 1.03.”

“By the end of this year, it seems likely that the market will increasingly be focussed on 2023 US recession risks. In reflection of this our forecast profile for the USD has for some time outlined a weaker USD on a six to 12-month view. However, in Q2 we moderated how much ground the USD is likely to give back this year. Our 12-month forecast for EUR/USD stands at 1.10.”