EUR/USD to meander to the 1.10 area by the mid-2022 – Rabobank

Economists at Rabobank maintain the forecast of a grind towards EUR/USD 1.10 by the middle of the year. But they highlight the risk of pullbacks for the greenback due to the prevalence of long positions and the potential pace of Fed rate hikes this year.

USD to be sensitive to any data disappointments

“While we are on the view that EUR/USD can meander to the 1.10 area by the middle of the year as Fed tightening kicks off, we remain of the view that pullbacks may be an inevitable part of the USD outlook in the coming months.”

“If the Fed tightens policy too quickly, the risk of a hard-landing increases. This would not bode well for the medium-term outlook for the USD as the market could again be focussed on policy accommodation from the Fed in the not too distant future.”

“While the current strength of the US economy is ensuring that recession is only considered to be a tail-risk by most commentators, the build-up of long USD positions in recent months suggests that the USD is set to be sensitive to any data disappointments.”