Late last week, EUR/USD failed to hold gains above $1.15, disappointing traders who had hoped for a big breakout. For 2019, experts still believe in higher EUR/USD rates, although the euro will likely lose value relative to the pound on any soft-Brexit options. In the short term, too, it may be in trouble.
Against the US dollar, the euro has, for the most part, been dormant since late October. In fact, on only 7 of the 54 trading days since October-23 has the world’s most actively traded FX pair ventured outside of a $1.13-$1.15 range.
Wednesday’s rally from $1.144 to $1.155, coupled with a strong close, was therefore welcomed with open arms by euro bulls, as was strength relative to other major currencies.
Against the US dollar, this was supposed to be the moment that kick-started the euro’s post-QE rally. Those hopes were quickly dashed, however, when come Thursday, the euro bombed across the board.
After two days of losses, the euro ended the week back within its recent trading range, buying only $1.147. Against the Australian dollar, it dropped to a 3-week low of A$1.589, and against the pound on Friday, the euro suffered one of its worst days in recent months, as it weakened by nearly a penny to trade at a 5-week low of £0.893.
So what now?
In its January recommendations, Swedish bank SEB recommended betting on euro depreciation versus the yen, Swedish krona and Norwegian krone on grounds of seasonality, and it re-affirmed its commitment to the euro-bear cause in a research note on Friday.
Another short-term trend will likely be a decline in EUR/JPY, which is now at an “appealing” level according to Societe Generale.
Over a longer period, Danske Bank retains the euro as one of its “top trades” of the year, with EUR/USD heading to $1.25 by year-end, as long as a US-China trade agreement is reached and the ECB lifts interest rates sometime in 2019.
Of the same opinion is Bank of America Merrill Lynch. “Our EUR/USD forecast remains $1.25 for the end of the year, which is a move towards its longer-term equilibrium value in our view,” BAML’s team wrote on Friday.
In contrast, relative to the pound, the euro should weaken over the coming months, per BAML’s latest commentary—the bank implied as much with its “all pathways are leading to a soft Brexit” view, although it offered no specific EUR/GBP forecasts.