Near Term Forecast Changes
Rabobank kept its medium-term EUR/USD forecasts unchanged for now, but said they remain under review as energy and geopolitical risks develop. It also noted that its earlier EUR/USD forecasts were already below market consensus and near the lower end of market projections. The report said the euro is near the bottom of the currency performance table. It linked this to the market holding long EUR positions for months and to a worsening Eurozone terms of trade, as the region is a net energy importer. The article states it was produced with the help of an AI tool and reviewed by an editor. Given the prolonged disruption in the Strait of Hormuz, we have lowered our near-term EUR/USD forecasts. We now see the pair trading at 1.14 in one month and 1.15 in three months, down from our previous target of 1.16. This adjustment reflects the high energy prices now acting as a significant tax on the Eurozone economy.Potential Trading Strategies
The situation is amplified by soaring energy costs, with Brent crude futures surging past $115 a barrel this month, a level not seen since the summer of 2022. This has directly impacted the Eurozone’s trade balance, which recent data shows widened significantly last month due to a jump in the cost of energy imports. The United States, being a net energy exporter, is comparatively insulated from this shock, strengthening the dollar’s appeal. Derivative traders should consider positioning for further euro weakness against the dollar in the coming weeks. Buying EUR/USD put options with strike prices around the 1.14 level could offer a clear way to profit from this expected downturn. Selling out-of-the-money call options is another strategy to consider, capitalizing on the view that a significant rally is unlikely. We are seeing a rush to exit the long euro positions that had built up over the past few months. This crowded trade is now unwinding, which could accelerate the pair’s decline as stop-loss orders are triggered. We saw a similar dynamic back in 2022 when the energy crisis following Russia’s invasion of Ukraine drove EUR/USD below parity. This energy shock creates a policy divergence between the central banks. The European Central Bank will find it difficult to maintain a hawkish stance as the economy slows under the weight of high energy prices. Meanwhile, the Federal Reserve has more flexibility, making the dollar a more attractive currency for yield-seeking investors. Create your live VT Markets account and start trading now.
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