EUR/USD currency outlook

EUR/USD has moved closer to the top of its six-month 1.0458-1.1714 range over the past month due to broadly weaker-than-expected US data. A shortterm break above the August high of 1.17, however, looks unlikely, as safehaven flows fade alongside fears of a hard landing in China. 

Instead, the euro is expected to resume its descent, given the potential for more ECB quantitative easing (QE) and/or a US rate hike by year end, says Lloyds bank.

Although weaker US data have raised question marks over the latter, a negative euro area CPI outturn in September has increased the probability of the former. That said, any downside for the euro is likely to be short-lived, in keeping with the reaction to the ECB's first QE announcement in January.
 
Lloyds Bank argues the euro should benefit from the following factors:

• (i) the region's relative growth potential; 
  
  
• (ii) its strong current account position; 
  
  
• (iii) the relative weakness of euro area inflation; 
  
  
• (iv) the potential for some further fading of euro risk premia.