EUR/USD: Forecast For 1.14 On Target, Aiming For 1.16 In Q2 - BNPP

Around mid-February, BNP Paribas made substantial changes to its  forecasts for EURUSD and expected EURUSD to stand at 1.14 at end Q1 (from 1.04) and 1.16 at end-Q2.

(Source: BNP Paribas, eFXplus)

Today, as EURUSD has broken its year-high of 1.1375 and reached BNPP's end-Q1 forecast, BNPP views that the pair can continue to move higher and target a rise to 1.16 over the coming quarter, advising that a better opportunity may present itself over the weeks ahead for establishing long EUR/USD positions.

BNPP identified several key themes to focus on for EURUSD in Q2: 

"1) Fed dovishness likely to undermine the USD further. The revision to our EURUSD forecasts earlier in the year was a reflection of significant changes in economists’ outlook for US Fed rate hikes, with the call for three rate rises this year being trimmed to none. Current forecasts expect that the Fed will not be able to raise rates before 2018.

2) A downturn in risk-appetite would bolster EURUSD. We view that EURUSD’s relationship with risk appetite will remain important over the coming quarter. We recently highlighted in EZ BoP: Repatriation amid riskoff that the appetite of eurozone investors moderates during periods of riskoff, leaving the EUR supported by its current account surplus. This means that any reduction in risk appetite would be supportive for the EUR.

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3) CLEER projections are bearish for EURUSD at year-end, but scenario analysis suggest EURUSD could rise in Q2. BNP Paribas CLEER, our medium-term macro-based forecasting model, indicates that the fair value for EURUSD is substantially lower than current spot, at around 1.03, and projects EURUSD at this level at year-end. However, scenario analysis using the model highlights the potential upside pressure on EURUSD in Q2 based on our outlook for current account balances to be a more important driver for G10 FX.

4) Technical picture for EURUSD is bullish. We also see scope for further upside in EURUSD from a technical perspective. The break through the 2016 high opens way for the pair to continue to rise within the bullish channel established in early December. The top of this corridor is currently 1.1530 while measured moves target 1.1658-64," BNPP argues.