Analysis | Investment banks predict a strong year for the euro
The past year was dynamic for the euro. In September, it fell to 0.95 against the dollar (the lowest level for the last 20 years), and at the end of 2022, the euro made up some of the losses.
The main reason for the recent appreciation in the euro is the approaching end of the cycle of raising interest rates by the Fed. On the other hand, the European Central Bank faces several more serious interest rate hikes before they reach their peak.
Against this background, some of the major investment banks are predicting a strong performance for the euro this year. Below we will look at what their expectations are.
Morgan Stanley raises EUR/USD forecast
Currency strategists at Morgan Stanley cut their forecast for dollar growth this year. Their forecast for the dollar index, which measures the dollar's performance against a basket of several major currencies, is to reach levels around 98 points at the end of the year. According to Morgan Stanley, the US currency will experience particular difficulties against the euro.
„Global growth is showing signs of picking up. Inflationary pressures are easing, as a result of which investors are pulling away from the greenback,”, the bank's strategists said in a message to investors.
Morgan Stanley expects the EUR/USD pair to trade at the end of the year at levels around 1.15. This is a serious change in the bank's expectations compared to previous forecasts, which were for growth up to 1.08.
Bank of America expects EUR/USD at 1.10
In a note to clients, Bank of America's currency strategists say they also expect an upward movement in the EUR/USD pair in 2023. According to the bank, the euro is currently undervalued, so appreciation is expected this year.
„According to our models, the euro will reach the levels of 1.10 dollars per euro this year and 1.15 in 2024. The EUR/USD pair is currently trading close to our forecast for the current year. The war in Ukraine, as well as the prices of energy resources, continue to hide uncertainty.“, say the bank's analysts.
The level around 1.09 is defined as important for the EUR/USD pair. “By reaching 1.09, the single currency will make a test of this resistance level. It is possible to see a corrective movement down to 1.05 before the euro again takes the direction of 1.10 and up”, commented the bank.
ING believes the euro is undervalued
According to ING analysts, the EUR/USD pair will continue its upward movement this year. The investment bank sees a “more favorable environment” for the single currency, which could work its way to “significantly higher levels” in 2023 and 2024. ING sees EUR/USD at levels of 1.15 this year.
According to the bank's currency strategists, this year the euro will move in the range from 1.08 to 1.15. For 2024, the expectations are that the EUR/USD pair will reach 1.18.
A growing number of analysts at leading investment banks expect the dollar to lose ground this year as a result of the end of the Federal Reserve's interest rate hike cycle. Many strategists such as those at ING, for example, have revised their EUR/USD forecasts to the upside, saying that any dip in the pair is a good opportunity to look for entry into long positions. According to the experts, any decline in the EUR/USD pair towards 1.05 is a good opportunity to enter into purchases.
Short-Term customer sentiments
BenchMark's market sentiment chart, which reflects short-term sentiment among clients, shows that expectations are currently firmly bearish. 79% expect a decline, while only 21% expect an increase.
The data is based on actually concluded transactions in BenchMark's MetaTrader platform as of 12:30 p.m. on 01/24/2023.
You will find more indicators with market statistics developed specifically for BenchMark clients after logging in to the Client Portal
The information presented is not and should not be perceived as a recommendation, advice to enter into transactions, investment research or consultation for making an investment decision, a recommendation to follow a particular investment strategy or be perceived as guarantee of future performance. The content is not tailored to the risk profile, financial capabilities, experience and knowledge of a specific investor. BenchMark uses public sources of information and is not responsible for the accuracy and completeness of the information, as well as for the period of its relevance after publication. Trading in financial instruments carries risk and can result in both profits and losses that are partial or in excess of the initial investment. For this reason, the client should not invest funds that he cannot afford to lose. This publication has not been prepared in accordance with regulatory requirements aimed at promoting the objectivity and independence of investment studies and investment recommendations, is not subject to a ban on concluding transactions in relation to certain financial instruments and/or issuers, prior to its distribution by the person who prepared it person or persons concerned for the investment intermediary and as such should be perceived as a marketing message. 60% of retail investor accounts lose money when trading CFDs with this provider. Consider whether you understand how SDRs work and whether you can afford to take the high risk of losing your money.