EUR/USD - crucial juncture? - Rabobank

"EUR/USD appears to have steered away from breaking below some crucial technical supports. On the weekly chart, the 200 sma at 1.1703 continues to offer support as does the August low near 1.1662," point out analysts at Rabobank.

Key quotes:

"However, it is too early to be confident that this year’s uptrend remains in place.  Our central forecast is that EUR/USD is heading towards 1.25 on a 12 mth view.  However, risks to this view remain."

"Much of this year’s uptrend in EUR/USD has been motivated by the rotation back into the EUR. Yesterday the IMF lifted its growth forecasts for a number of countries including Germany, France and Italy.  The growth of the Eurozone economy has been one of the global success stories of this year.  This factor, combined with cheap money, has enhanced investor opportunities while the present of a large current account surplus has also been supportive for the EUR.  Even though the political backdrop has soured in recent weeks following Merkel’s hollowed victory in the German elections in September and the Catalan independence referendum, on balance the EUR has held its ground well.  This morning’s move higher in EUR/USD can be related to news of a de-escalation of the crisis in Catalonia, though uncertainties about the region’s relationship with Madrid persist. "

"In terms of this year’s uptrend in EUR/USD, it is clear that the low hanging fruit has been picked. In terms of growth the Eurozone continues to offer an attractive backdrop for the EUR.  That said the souring in political sentiment in the Eurozone is a reminder of the challenges that remain.  On balance we expect EUR/USD could consolidate around current levels in the coming weeks and we are forecasting a move back to 1.20 only on a 3 month view and a slow move to 1.25 in 12 months.  A clear step up in either US inflation or in the pace of fiscal reform in the US would likely cause us to strengthen our forecasts for the USD and revise down our projections for EUR/USD."