According to analysts from Rabobank, explained that the EUR/USD pair has traded a tight range recently but the bias has been skewed lower this year. They see the Euro still vulnerable to a deterioration in fundamentals, while the USD is being propped higher by safe haven flows.
“Indecision is an apt word to describe the performance of EUR/USD in recent weeks. In spite of a realm of global economic and political uncertainty the currency has maintained a tight trading range, lacking the enthusiasm for a break out in either direction. That said, despite the recent vacillation the currency pair has managed to maintain a slow, tortuous trend lower since the start of the year. It is our view that this will reach the 1.10 area on a 3 month view with the USD set to benefit from safe haven inflows despite market speculation that the Fed could be readying itself for a rate cut in the not too distance future.”
“We have maintained for a long time that it would be a mistake to view the USD’s fundamentals in isolation. In the final weeks of last year the market started to look ahead to a less hawkish Fed. More recently the inversion of the US yield curve is leading to speculation that the Fed could be cutting rates potentially by the end of this year in an effort to soften the impact of a potential recession in 2020. This news, however, has been unable to significantly undermine the value of the greenback – the DXY USD index has maintained an uptrend since early 2018. The USD is performing as a safe haven for many investors as fundamentals elsewhere worsen and risk appetite retracts. The EUR, by contrast remains susceptible to a worsening in domestic fundamentals.”
“While we see scope for the USD to underperform the JPY in the coming months we expect the USD to remain well supported against a basket of currencies and see scope for EUR/USD to edge lower to 1.10 in the coming months before edging higher in 2020 on the back of Fed rate cuts.”