1Finance

"EUR/USD has bought into fading ECB-Fed policy divergence after the ECB largely gave up the fight for euro depreciation and following recent dovish Fed comments. With positioning now much lighter in terms of short EUR/USD bets, we are probably entering a period in which relative rates could increasingly play a role again, and with a mere 50/50 pricing of a September Fed hike, and the ECB once again challenged on its mandate by market inflation expectations, we see relative rates moving for a weaker EUR/USD in 1-3M. Notably a negative Brexit risk premium could also be factored in ahead of the UK referendum but should be priced out swiftly in our main scenario of no Brexit."

"We keep our forecast profile unchanged, which leaves some downside near term (1-3M forecast at 1.12) followed by a sustained move higher towards 1.18 in 12M as valuation continues to drive the cross higher."

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