Rabobank’s Senior FX Strategist Jane Foley expects the EUR/USD currency pair to remain largely range-bound near key moving averages as markets await clarity on a potential US-Iran deal and upcoming US economic data that could influence Federal Reserve (Fed) policy expectations [1]. Foley notes that EUR/USD traded with a slight upside bias through the last week of May and is currently positioned just below the 50-, 100-, and 200-day simple moving averages, with the 200-day SMA at 1.1682 [1]. A technical break above these levels could encourage further buying, but the market is likely to remain cautious until new fundamental factors emerge, such as developments in US-Iran relations or significant US economic data releases [1].
Rabobank recently revised its geopolitical outlook, now seeing a risk that the Strait of Hormuz may not reopen for up to three months, which could drive safe-haven demand for the US Dollar in the near term and potentially push EUR/USD towards the 1.15 level on a one-month view [1]. Over a three-to-six-month horizon, Rabobank expects EUR/USD to recover, but reaching the 1.20 level will be challenging due to persistent Eurozone growth risks [1]. Foley emphasizes that any significant upward movement in EUR/USD this week would likely require a positive development related to the end of the war, while uncertainty about the Fed's outlook may keep the market cautious ahead of the US May labor report [1].
Looking forward, Rabobank anticipates that an October rate cut from the Fed could allow EUR/USD to trend upwards in the second half of the year, but does not expect significant upward traction during this period [1]. The market is already pricing in two ECB rate hikes, but growth headwinds in the Eurozone are likely to keep EUR/USD 1.20 as a difficult target for the single currency this year [1].
CONCLUSION
Rabobank projects that EUR/USD will remain range-bound in the near term, with safe-haven USD demand likely due to geopolitical risks and Eurozone growth concerns. While a gradual recovery is expected over the next three to six months, significant gains above 1.20 are seen as unlikely this year.