SEB Research flags a scope for EUR/USD to grind lower in Q4.
"Despite our constructive view on the EUR/USD in the medium-term, we believe there is a good chance that risky assets experience a setback during Q4, pressing EUR/USD temporarily lower," SEB notes.
"The COVID-19 pandemic continues to have a negative effect on peoples’ behaviour and production as long as a vaccine is not widely available and mobility restrictions remain in place. This, together with increasing COVID-19 infections, creates a lot of uncertainty regarding recovery in Q4. The recovery gets fully going only when the household savings rate starts falling and the companies start hiring on a large scale. If COVID-19 remains with us for the coming 3-6 months, it could badly hinder the recovery process if private spending gets stuck at low levels. If the recent rapidly improving economic data in Q3 starts to falter and the incoming data points to dismal growth for Q4, it is likely to result in a setback in risk assets. This would work in favour of the dollar and increase expectations of further ECB easing, e.g. rate cuts. It is good to bear in mind that unlike the Fed, the ECB has never shut the door for further rate cuts," SEB adds.