ECB communication and the balance of political risks have shifted in favour of the euro.
We lift our 1- and 3-month forecasts from 1.13 to 1.17, reflecting that we expect the level shift higher in EUR/USD to persist, while expecting momentum to ease near term amid stretched technicals, short-term valuations and positioning (IMM).
Longer term, we still expect a higher EUR/USD supported by fundamentals and less Fed-ECB divergence. We lift our 6- and 12-month targets to 1.18 in 6M and 1.22 in 12M (from 1.15 and 1.18 respectively).
Fundamentally, we see EUR/USD as still undervalued and the big move that investors should focus on is still a higher EUR/USD. We maintain that any dips in EUR/USD are likely to prove short-lived and would still buy the cross on dips.
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