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Jun 11 - 02:55 PM

RBC: Here is why we Maintain EUR/USD Target at 1.05 by End of Q3

By eFXdata  —  Jun 11 - 02:00 PM

Synopsis:

RBC maintains its forecast for EUR/USD to reach 1.05 by the end of Q3, emphasizing the significant influence of the US economic outlook and EUR trading as an "anti-dollar". Several factors could drive the pair lower, despite the current near-neutral positioning.

Key Points:

  1. Current EUR/USD Positioning:

    • Markets have significantly scaled back short EUR/USD positions.
    • The positioning is now close to neutral, setting the stage for potential downside movement.
  2. US Economic Outlook:

    • The trajectory of the US economy remains crucial for EUR/USD direction.
    • A stronger-than-expected bounce in US economic data could support the dollar and weaken the euro.
  3. Eurozone Economic Data:

    • Conversely, any dip in Eurozone economic data could exert downward pressure on EUR/USD.
    • Market sentiment is sensitive to comparative economic performance between the US and Eurozone.
  4. Geopolitical and Trade Factors:

    • Pre-election rhetoric from Donald Trump, particularly around potential EU tariffs, could negatively impact the euro.
    • Such geopolitical factors could catalyze further EUR/USD depreciation.
  5. Historical Levels:

    • A return to the mid-April low of 1.06 is plausible under the right conditions.
    • Breaking past this level to the October low of 1.05 remains within the realm of possibility.

Conclusion:

RBC's forecast for EUR/USD to reach 1.05 by the end of Q3 hinges on a combination of US economic resilience, potential Eurozone economic softness, and geopolitical factors. While the current EUR/USD positioning is near-neutral, these influences could drive the pair lower in the coming months.

Source:
RBC Research/Market Commentary

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