EUR/USD seen at 1.2000 in Dec 2018 – Societe Generale

Analysts at Societe Generale call for a stronger Euro in the coming months amid a strengthening Eurozone economic recovery while the US dollar is expected to weaken due to deteriorating US fiscal and external balances.

Key Quotes:

“Cautious optimism on Euro area economy - but Italy remains a wildcard. 

Improving wage data in the euro area

ECB's confidence in the convergence of inflation towards its medium-term objective

Negative economic surprises in Europe have stopped deepening since late spring

Economic growth in 2018 risks being lower than generally projected at the beginning of the year, but probably not much below the ECB forecast of 1.9%

Recent easing in trade tensions with the US could support economic sentiment

But Italian uncertainties remain a wildcard for the cautiously optimistic outlook for the euro area economy

The near-term factor is the evolving US business cycle, which we believe is maturing, as evidenced by the flattening yield curve. 

At the same time, the evolving Brexit picture and European economic data flow will influence the euro and sterling legs of key dollar exchange rates. 

We expect the European recovery to gain strength going forward. 

Over the medium-term, we have deteriorating US fiscal and external balances in the background, plus the dollar's still-rich valuation exerting a (weak) gravitational effect on the currency. Beyond all this is the lurking risk of more forceful policy action by the Trump administration to weaken the dollar.”

EUR Forecasts