forexcryptozone — UBS strategists lowered their forecasts for Monday, anticipating the forex pair to quickly take a look at parity amid strengthening U.S. financial exercise, earlier than rebounding once more in the direction of the top of the 12 months.
The strengthening of the US greenback, supported by strong financial knowledge in the US, has lately put rising strain on the euro.
In distinction, the European economic system stays sluggish, with January Buying Managers' Index (PMI) figures displaying marginal progress in companies and continued contraction in manufacturing.
“Stronger US financial exercise is prone to set off a take a look at of the EURUSD, earlier than the pair climbs again into the 1.05-1.10 vary in the direction of the top of the 12 months,” strategists at UBS Dominic Schnider and Brian Rose in a be aware.
Additional complicating the financial outlook is that the inauguration of US President Donald Trump has introduced US tariffs to the forefront of market concerns. UBS means that the probability of a good tariff trajectory is low, with expectations tilted in the direction of a extra assertive stance, significantly in the direction of China.
Strategists stated this might result in a weakening of the forex, which might typically have an effect on growth-friendly currencies just like the euro, probably pushing EUR/USD to parity with occasional dips beneath.
Whereas many optimistic elements are already mirrored within the present valuation of the US greenback and destructive elements within the euro, UBS notes {that a} change in market sentiment would require vital modifications in US financial progress, tariff insurance policies or a slight enhance in European progress. Nonetheless, the trail ahead is anticipated to be complicated and non-linear.
The financial institution additionally highlights the potential for deceleration in US progress and the truth that the European Central Financial institution (ECB) is anticipated to sign an finish to fee cuts by the top of June 2025, which might shift dynamics in favor of the euro within the second semester.
When it comes to funding suggestions, UBS strategists consider that falls beneath parity could present alternatives to scale back extreme lengthy positions within the US greenback.
Technical help for EUR/USD is seen round 1.00 then 0.985, with resistance round 1.05.
Dangers to UBS's forecast embrace potential fee hikes from the Federal Reserve in response to strong financial exercise, which might hold EUR/USD beneath parity, or if U.S. tariffs have a big impression on European progress and the ECB cuts charges additional, which might additionally hold the change fee decrease. parity.
The strategists additionally be aware {that a} quicker reversal in EUR/USD might happen if US GDP progress falls beneath 2% earlier than anticipated, which might probably lead markets to anticipate extra fee cuts and a weakening greenback, pushing the forex pair increased. the vary 1.05-1.10.
