Goldman Sachs headquarters, New York. © Ludovic Bertron, Flickr, reproduced under CC licensing.
Analysts at Wall Street's Goldman Sachs say they maintain the view the Euro will rally back towards the 1.20s over coming months, but a note to clients out ahead of the new week suggests the call does not enjoy the conviction it might once have commanded.
Goldman Sachs' forecast that the Euro-to-Dollar exchange rate will reach 1.20 in 12m "looks like a stretch, but we are not inclined to revise lower just yet," says Zach Pandl, an analyst in the investment bank's New York headquarters.
There are three reasons why Pandl and his team are backing a stronger Euro:
"First, global industrial activity appears to be perking up; given likely spillovers from China’s slowing to Germany over the last year, Euro Area growth may trough soon as well.
"Second, Brexit negotiations are at a critical stage; a resolution or long extension of the talks
would reduce downside risks to EUR.
"Third, the tight range for EUR/USD has held despite substantial private investor outflows—possibly due to a persistent bid from sovereign buyers — so downside for the currency may be limited as well."
However, Pandl warns if the expected growth rebound fails to materialise over the next 1-2m "we might see additional ECB easing at the June meeting, sending EUR lower".
Goldman Sachs are therefore sticking with their base-case for the EUR/USD outlook for now, "but risks are skewed to the downside," says Pandl.
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