We lower our 1M EUR/USD forecasts to 1.02 (1.05 previously) but maintain our 3M forecasts at 1.04, 6M forecasts at 1.08 and 12M forecasts at 1.12.
The lowering of our 1M forecast reflects partly ‘a rolling’ of our monthly forecasts but is also the result of the Fed’s hawkish shift at its meeting on 14 December. We stick to our view that the Fed will hike twice next year but the risk is now skewed towards three hikes.
The recent downside break in EUR/USD off the decade’s low from March 2015 at 1.0458 is set to open the door for further losses, given rising US growth and rate expectations.
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As such, we continue to view EUR/USD as a short-term ‘sell on rallies’.
Medium term, we continue to expect EUR/USD to head substantially higher due to valuation and the record-high eurozone-US current account differential.