Goldman Sachs doubts the bullish potential of EUR/USD, confirms target at 1.10 By Investing.com
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Investing.com – After April notched a yearly high of 1.1095, it has so far been a rough month in May, as the currency pair fell to a low of 1.0760 on Tuesday and remained under pressure on Wednesday, weakness for analysts at Goldman Sachs, they explained in a note. Posted last night.
The bank first explained that “the recent rebound in the dollar is due to positive developments on both sides of the FX ledger.”
They noted that “credit conditions have not tightened as much as initially feared in the US,” which is positive for the dollar, and that “activity in Europe and China disappointed strong expectations to start the year,” which is a bearish factor for the dollar. euro.
Analysts also felt that the outlook in terms of monetary policy divergence is only marginally supportive of EUR/USD, noting that “although Fed officials have suggested they believe they are close, or may already be, to setting up a ‘restrictive enough’ policy.” The ECB said it believes it is not far from “situations that Goldman Sachs does not consider to be divergent.”
Believing that this background may not be enough to justify a further rally in EUR/USD, the bank noted that capital inflows also provided only limited support.
“So far, positive returns have been sufficient to stem fixed-income outflows in the eurozone, returning to a pre-2014 standard of gradual inflows, but not sufficient to reflect the velocity of outflows when the rate became negative,” GS wrote. .
Goldman analysts further saw little chance of improvement on this front, noting that “the valuation case for portfolio reallocation is less compelling than it has been previously, mostly due to the euro’s recent rally off its lows.”
In conclusion, Goldman Sachs (NYSE:) has mixed views on EUR/USD, maintaining its year-end target of 1.10, just over 2% above the current price, while also expressing skepticism that the currency pair could break out of its level. The latter range to reach new annual highs.
