Citi assessed prospects for the EUR/USD exchange rate
The EUR/USD correction turned out to be quite restraining, and Citi analysts believe that the pair can expect new attempts to storm the resistance around 1.15. The bank keeps the three-month forecast at 1.14, expects growth to 1.16 in 6-12 months, and in the longer term expects the rate ro return to 1.20.
Citi notes that investors are currently most concerned about the recovery of economic growth, so the efforts of European politicians to stimulate it, coupled with aggressive monetary policy of the ECB, had a very favorable effect on the mood for the euro and ensured a reduction in its risk premium.
The overall level of uncertainty remains high, taking into account that the coronavirus problem remains unresolved. However, Citi believes that a new lockdown in the U.S. looks unlikely so far. The bank admits that the dramatic increase in hospital occupancy may change everything, but while this is not happening, the authorities in response to the growing number of diseases will probably prefer other measures, such as putting the process of relaxation of quarantine measures on pause, or introduce the mandatory wearing of masks. Given the impact of the lockdown on the economy, such an approach is likely to be common to other countries, which gives hope of maintaining a relatively steady appetite for risk.
Over time, the focus is likely to shift towards the issue of inflation, and analysts note that this is one of the factors that allows to expect further growth of EUR/USD. They pay attention to the fact that ECB monetary stimulus looks very modest compared to the Fed's efforts, which in the long run promises to be translated into weakening of the US dollar.