Barclays Capital FX Strategy Research notes that while strong euro area growth next year should keep the EUR on a medium-term upward trend, the common currency has temporarily outrun its fundamentals.
"While euro area rates have turned an important corner and, we think, have a lot of catch-up to do, we expect policy rates will remain negative throughout our forecast horizon and markets will price negative rates through 2020.
In addition, the EUR now is at rough fair value on a multilateral basis, which appears excessive for an economy with a still large output gap but we expect it to eventually be justified by normalising relative returns to capital.
The Politics of Rage appears to be still alive and well in Europe. And, what is likely to be the most difficult political test for Europe, Italy’s early-2018 election, still lies ahead," Barclays argues.
Barclays now expects EUR/USD to average around 1.20 into the end of the year and through Q1 of 2018.
Source: Barclays ResearchOriginal Article
