EURUSD: Will oil cool the potential for 1.20? - BAML

The rally in EUR-USD this year has been in part a result of a constant tide of negative US political news, reversing the USD-positive policy optimism at the start of the year, according to John Shin, Research Analyst at BofA Merrill Lynch.

Key Quotes

“Given the momentum, markets have started to consider the euro climbing above 1.20type levels more persistently over the next year, which would indeed be above our own estimates of fair value for EUR-USD. Our views of the euro are on the pessimistic side, focused on a longer-term 1.15-type level, and we still remain skeptical in terms of expectations for a new substantially higher EUR-USD regime.”

“One key factor for our skepticism is that EUR-USD and oil prices have diverged, although they generally have broadly moved together. Given our commodities team still looks for WTI in the low $50range by the end of next year and averaging $50 over the entirety of 2018, we remain reluctant to look for a persistently rising euro from here.”