We maintain a forecast of EUR/USD 1.02 on a 3-month view – Rabobank

Jane Foley, the Senior FX Strategist and Head of FX Strategy at Rabobank's RaboResearch is out with a note highlighting the risk for a deterioration in Euro-area economics, seeing a case for the EUR/USD to reach 1.02 over the next quarter.

Germany’s woes

For the past year, the phrase ‘sick man of Europe’ has frequently been applied to Germany. There would appear to be as many commentators that disagree with this judgement as those that think it appropriate. Both groups, however, tend to concur that Germany needs structural reforms.

The size of Italy’s debt is drawing more attention. The country’s far-right government has recently revised up its forecast for Italy’s deficit/GDP ratio next year so that it can meet its manifesto promises. This raises the chances of conflict with Brussels.

Even though we expect the US to fall into technical recession early next year, the likelihood of a downturn in both the Eurozone and the US, combined with slow growth for China, suggests that the USD will be supported by safe haven flows well into 2024. We maintain a forecast of EUR/USD 1.02 on a 3-month view. 

According to the OECD, Germany’s economic outlook this year will be the second worst (after Argentina) in the group of countries that it assesses. The IMF predicts a -0.5% contraction for Germany this year. 

The ECB recently revised down its forecasts for Eurozone growth significantly, though compared with our house view, these still appear optimistic. We expect the Eurozone to be in technical recession in H2 this year and for growth next year to be a meagre 0.5%.