EURUSD: Set to trade into a lower 1.00-1.10 range in 2017 - RBS

Research Team at RBS expects EURUSD to trade into a lower 1.00-1.10 range in 2017 after marking a 1.05-1.15 range for the last two years.

Key Quotes

“ECB continues to face inflation well below its de facto 2% target. October’s headline CPI reached 0.5%y/y on the back of energy base effects and RBS expects it to rise as high as 1.6%y/y in 2017. But core inflation remains stuck at 0.8%y/y. RBS forecasts core inflation will only be 0.7% in 2017 and 0.9% in 2018, prompting the ECB to extend quantitative easing throughout next year.”

“Second, the Eurozone faces key elections including the Netherlands’ on 15 March, France’s two rounds for its presidential elections on April 23 and May 7 and Germany’s federal election in H2’16.”

“The key upside risk for the EUR is the ECB tapering asset purchases before the end of 2017. Long term fair value for EURUSD is around 1.15-1.20. If the ECB considers exiting its bond buying it will allow the EUR to start recovering its losses.”