EUR/USD pair likely to trade around 1.22 by end-2018, says Lloyds Bank

Since June, the euro has been amongst the best-performing developed market currencies, appreciating more than 3 percent against the U.S. dollar, noted Lloyds Bank in a research report. Central bank policy, along with increased political uncertainty in the U.S. has driven the move. During its July meeting, the European Central Bank kept its policy rates on hold. Furthermore, President Draghi kept a ‘dovish’ stance during its post-meeting press conference, reiterating that a “substantial degree of accommodation is needed” and a tightening in financial conditions is the “last thing” the Governing Council desires, stated Lloyds Bank.

But this was overshadowed by a decline in U.S. bond yields that was driven by increased U.S. political uncertainty. Moreover the U.S. Fed, in its statement expressed additional concern about the weakening in U.S. inflation that led to an extension of recent weakness in the U.S. dollar.

In the short-term, there is scope for a pullback, given the expectation for the path of the Fed funds rate is bullish when compared to the market expectations, long EUR positioning might be stretched and momentum shows signs of divergence, said Lloyds Bank. Still, economic and market sentiment measures continue to be buoyant with regard to the euro and estimates imply the pair is undervalued.

“We anticipate a move to 1.22 by end-2018”, added Lloyds Bank.

At 22:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at 13.5771, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 68.508. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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