– A rapid improvement in financial conditions and a less-dovish-than-expected ECB have led to the EUR being the strongest major currency in 2013 so far.
– However, medium-term risks to EUR/USD remain to the downside, in our view. Our economists forecast euro area growth to be far weaker than that of the US, which is likely to translate into relative monetary policy weighing on EUR/USD. Political and implementation risks on fiscal consolidation in the peripheral economies also pose downside risk to the EUR.
– Given the recent move higher, we have revised up our near-term EUR/USD forecasts but maintain our bearish medium-term bias. We now forecast EUR/USD to move to 1.38, 1.36, 1.32 and 1.28 in 1, 3, 6 and 12m, respectively.
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Barclays Capital