EUR/USD: Narrower US-EZ growth differentials in 2020 may lead to a rebound – CitiBank

Analysts at Citibank think pessimism regarding the Eurozone outlook may be overdone especially if Brexit is resolved and the European Central Bank (ECB) itself appears to be signalling little appetite to ease monetary policy further with fiscal stimulus seen as the next pillar of support. They forecast EUR/USD at 1.11 over the next three months and at 1.16 over the next six to twelve months. 

Key Quotes:

“Although ECB actions are nonetheless designed with a weaker EUR in mind, US President Trump and his Administration are actively trying to cap $ upside both via firing warnings to the ECB and jawboning the Fed for further cuts. The Fed is adding $ liquidity. This is $ negative and EUR/$ volatility has been falling. We expect narrower US-EA growth differentials in 2020 and 2021. EUR may rebound.”

“On the weekly chart, the trend of EUR/USD is opposite to that of 2011-2014. The 55 week moving average at 1.1191 is closely watched. A weekly close above, if seen, would suggest extended gains with the next area of resistance at 1.1360-1.1410, with support at 1.1066.”