End of May, we revised our short-term (three-month) EUR/USD outlook slightly down to 1.10 on the back of increasingly disappointing data out of the eurozone: the escalation of the battle between Greece and its creditors and the risk the European Central Bank (ECB) will opt for tough words to talk down the euro.
In just ten days, most of these euro-negative factors have turned out to be less strong than feared, motivating us to return to our previous three-month projection of EUR/USD 1.12.
Eurozone economic data surprised positively again with German factory order, exports and production data being reported as quite robust. Admittedly, the conflict between Greece and its creditors is not resolved yet, but it is moving slowly in this direction. Finally, the ECB refrained from talking down yields and was reluctant to underwrite bond prices at whatever level. We think these arguments are enough not to challenge the euro’s advance in the month to date from below 1.10 close to 1.13 or in other words from more than 2.7%.
We return to our previous three-month EUR/USD forecast of 1.12 on the back of lesser risks out of the euro-zone and better economic data.
David Kohl is head of Currency Research at Julius Baer