Foreign exchange forecasters at Nomura suggest the Euro (EUR) is a buy against the US Dollar (USD) in their latest updated research brief to clients.
The analysts consider that US inflation pressures will tend to decline in 2023 with markets increasingly confident that the Federal Reserve will cut interest rates in 2024.
In this context, they expect that the Euro to Dollar (EUR/USD) exchange rate will make headway over the next few months.
In this context, they recommends buying EUR/USD with a target of 1.12 at the end August and expects a further advance to 1.16 next year.
Nomura notes that the Euro-Zone PMI releases for June were weaker than expected and the Euro lost ground in an immediate response. After initial losses, however, EUR/USD exchange rate bounced from the 1.0800 area.
The bank also notes that the Euro was also broadly resilient despite lower than expected US jobless claims data in the latest weekly survey.
Overall, therefore, EUR/USD has lost momentum generated during the month with only a brief move above the 1.1000 level, but the pair has found support above the 1.0800 level.
In this context, the bank considers that the overall trend has been range trading.
Looking to the second half of the year, Nomura considers that market dynamics will be similar to that seen in the second half of 2021, although the moves in exchange rates will be opposite to that seen in 2021.
According to Nomura; “In H2 2021, energy prices were rising aggressively, bringing inflation with them, and the Fed started to turn more hawkish towards the end of 2021. USD strength was naturally the result.”
The bank expects that the fundamentals will point in the opposite direction this year.
It notes; “This time, we expect the opposite to happen (i.e., low or falling energy prices, disinflationary trends and the potential for a much less hawkish Fed with potential rate cuts next year). This is a combination that would point to EUR strength instead.”