EUR/USD to drop past 2020 lows in the 1.06 area if eurozone falls into recession – Rabobank

EUR/USD has recovered its poise following the sharp losses made on the back of the Russian invasion of Ukraine. While the shared currency is still vulnerable to bad news on the war and on energy supply, economists at Rabobank have revised up one-month EUR forecasts across the board. However, they maintain that the value of EUR/USD is set to remain lower this year than it would have been without the conflict and energy uncertainties.

Putin’s threat to respond to Western sanctions to send Europe into recession

“President Putin’s threat to respond to Western sanctions with an energy embargo would doubtless send Europe into recession. In this scenario, EUR/USD could drop past its 2020 lows in the 1.06 area and weaken substantially across the board. This would likely see EUR/CHF below parity and EUR/GBP below 0.82. On the assumption that recession is avoided, the EUR will clearly fare better.”

“We maintain that the value of EUR/USD is set to remain lower this year than it would have been without the conflict and energy uncertainties. However, if the eurozone can avoid recession, it is likely that the EUR can hold a 1.09 to 1.11 range in the coming months. This suggests scope for EUR/CHF to hold in the 1.03 area and for EUR/GBP to edge towards 0.85 on a 3-6 month view.”