RBS made no change to its EUR/USD forecasts this month. However
after a hiatus of a few months, RBS thinks there is some risk of faster
EUR/USD slippage to its 1.05 1-year target. The following are
the 5 key factors in RBS argument along with its targets for EUR/USD,
EUR/JPY, and EUR/GBP over the coming months.
1- "None of this has much directly to do with
Greece... Perhaps the most direct link to currencies is how respite from
Greece-related tensions could see markets borrowing negatively yielding EUR again to fund more FX carry elsewhere," RBS argues.
2- "Other factors that support some renewed fall in
EUR/USD this year: faster money positioning in EUR/USD is now much
cleaner than it was a few months ago, short EUR/USD is a far less crowded trade," RBS adds.
3- "Also, the German government bond market, which went into price melt-down in March, raising serious risks to other most owned positions like short EUR/USD, has stabilised," RBS notes.
4- "In addition, oil prices are falling again steadily. As
oil falls anew, so markets are less able to 'romance' a Euro zone
reflation story. As oil prices slide, it seems even less likely that ECB
QE as so far announced can deliver Euro zone inflation back to target.
Hence more QE, not less QE, may ultimately be needed," RBS argues.
5 "Another key variable, of course, is US data and the US Federal Reserve. Informing
our EUR/USD lower view is the assumption that the Federal Reserve makes
its first tightening move in September his year. That is a close call.
But a September rate cut is not fully priced and -if manifest - could
give the Dollar a boost into Q4," RBS projects.
