Euro Zone News

Euro Forecast At 1.21 In Three Months Vs Dollar On Accelerated Eurozone Vaccinations

Goldman Sachs: 12-Month Euro-to-Dollar Forecast Retained at 1.2800, Loses Faith in Commodity Currencies

Foreign exchange analysts at Goldman Sachs have lost confidence in its trade recommendation for buying commodity currencies against the US dollar, especially given higher US yields.

The bank, however, expects that the Euro-zone economy will start to improve which will boost the Euro and it still forecasts a Euro to Dollar (EUR/USD) exchange rate of 1.2800 in 12 months.

In October, Goldman Sachs recommended selling the US dollar against a basket of G10 commodity currencies comprised of the Australian dollar, Canadian Dollar, New Zealand Dollar and Norwegian krone (AUD, CAD, NZD and NOK).

The trade was ahead by close to 8% by mid-February, but has weakened since then amid a wider US recovery. There has also been an important impact from higher US bond yields which has sapped support for commodity currencies.

“Although we still expect these currencies to appreciate vs the Dollar over the coming quarters, firm US growth and rising bond yields may keep the greenback supported over the short-term.”

READ: British Pound Euro Exchange Rate Slides to 1.169, Are Best 2021 Levels Ahead?

Euro (EUR) Exchange Rates to Benefit from European Recovery Focus

“Beyond the next few weeks we think the main opportunity in G10 FX markets will be positioning for the likely recovery in European activity.”

best exchange rates todayAccording to Goldman, the pace of vaccinations within the Euro area is poised to accelerate significantly in April and May. It also expects that the current lockdowns will lower coronavirus cases relatively soon despite the battle with new variants.

It therefore, expects that the European recovery will accelerate which will unwind some of the current dollar support from growth divergence between the US and Euro area.

The bank has maintained a EUR/USD exchange rate forecast of 1.2100 for 3 months and 1.2800 for 12 months.

This would also imply that it expects the Euro to strengthen against commodity currencies including the Australian and Canadian dollars.

Given strong US growth and expectations of a European recovery, there should still be strong underlying support for the commodity complex and interest in buying on dips.

Indeed, Goldman notes; “Clear evidence that Europe’s covid situation is getting under control would likely warrant fresh USD short recommendations.”

READ: Outlook for Pound to Dollar Exchange Rate Today: GBP/USD Retreats from 1.39, Future Direction “About EUR/USD”

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