EUR/USD focus is now on 1.2000 – UOB

FX Strategists at UOB Group assessed the prospects for the single currency in the next months.

Key Quotes

“EUR/USD was amongst outperformers in G-10 on Friday, rallying 1% in a double upper-cut fashion to 1.1924 after Fed Chair Yellen did not fight the perceived dovishness while ECB President did not protest recent euro strength in the Jackson Hole Symposium”.

“The move is likely a short squeeze on positions set before the event on anticipation that Draghi would talk down on the euro. From here, markets would inevitably be paying attention to the psychological 1.20 level in EUR/USD”.

“That level was last seen in January 2015, the same month the ECB announced its Quantitative Easing (QE) programme. An eventual wind down of QE next year has sparked recent speculation in the euro. Many have also argued that once the era of extraordinary stimulus for the Eurozone is over, the common-bloc currency can sustain above 1.20”.

“For now, the barrier interest at 1.20 seems fairly light this week, with the most meaningful being €1.24b expiring this Friday. Overall, we maintain a core view of returning USD strength with Fed expected to announce its balance sheet reduction (BSR) plans next month. Stretched positioning in EUR/USD longs (CFTC data) also argues for patience. Thus, there should exists a better opportunity to buy EUR/USD on dips, at 1.17 – 1.18 thereabouts”.