Goldman Sachs lowered EUR/USD targets to 1.12 on a six- and twelve-month view, citing a rebuilding dollar support base and ECB rate cut risks. US jobs data Friday is next.
Alpha Score of 46 reflects weak overall profile with moderate momentum, poor value, poor quality, moderate sentiment.
Goldman Sachs cut its euro-dollar forecasts Wednesday, lowering its six- and twelve-month targets to 1.12. The bank also trimmed its three-month estimate to 1.14 from a previous 1.17.
The earlier case for sustained euro strength has weakened, the bank said. The dollar's decline that drove EUR/USD above 1.15 earlier this year is losing momentum. Goldman expects the dollar to strengthen because the Federal Reserve will hold rates higher than markets anticipate. Traders had been pricing rate cuts as soon as September. The bank now sees the Fed staying on hold through year-end.
The revised forecasts sit well below the current spot level. EUR/USD traded near 1.18 when the note was released. The move signals that the euro's rally, driven earlier by a weaker dollar and fading US exceptionalism, has run its course in Goldman's view. Its previous twelve-month forecast stood at 1.17.
The bank's currency strategists cited a narrowing rate differential as the euro zone's economy slows while the US labour market remains resilient. “The dollar's support base is rebuilding,” they wrote in a note to clients.
The euro zone's own policy outlook adds further pressure. The European Central Bank has signalled a potential rate cut in June. A move lower by the ECB would compress the yield advantage that had drawn capital into the single currency. Weak economic data out of Germany and France support that path.
For [EUR/USD] traders, the 1.15 area is the key level to watch. A break below that would confirm the turn lower and open the path toward Goldman's 1.14 three-month target. Resistance sits near 1.19. The bank sees limited chance of a test higher given its revised outlook.
Friday's US jobs report is the next scheduled data point. A strong print would likely accelerate the dollar's recovery, according to the bank's framework.
The [forex market] is watching how the dollar's renewed strength feeds through to other pairs. A stronger dollar typically weighs on emerging-market currencies, traders said.
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