Goldman Sachs: EUR/USD forecast maintained at 1.05 over 3 to 6 months

Goldman Sachs maintains its EUR/USD forecast at 1.05 for the next 3 to 6 months. The outlook is influenced by potential political uncertainties and the resulting policy divergence, which could weaken the Euro.

Key Points:

1. Political Uncertainty Impact:

   • Euro Weakening: Political uncertainty, especially around elections, may erode progress in economic indicators, inviting further policy divergence.
   • Soft Data Influence: Recovering Euro area activity momentum has been preventing EUR downside, but political uncertainties could alter this dynamic.

2. Policy Divergence:

   • Impact of Political Events: The post-election environment might lead to changes in policy, affecting the Euro’s strength.
   • Next Week’s Flash PMIs: These indicators will only partially capture the impact of the election announcement, leaving room for further developments.

3. Market Dynamics:

   • “Low Flow Zone”: The period between now and the US election is expected to be characterized by low market activity, influenced by political uncertainties.
   • Disruption Potential: The market might act as a forcing mechanism, leading to more “disruption” and affecting the Euro’s value.

Conclusion:

Goldman Sachs continues to forecast EUR/USD at 1.05 over the next 3 to 6 months, considering potential political uncertainties and the resulting policy divergence. The anticipation of a low activity period between now and the US election further supports this outlook.