1.20 remains close but a bit far for EUR/USD. The team at Bank of America Merrill Lynch explains the correlation with oil prices.
Here is their view, courtesy of eFXnews:
Bank of America Merrill Lynch FX Strategy Research notes that the rally in EUR/USD this year has been in part a result of a constant tide of negative US political news, reversing the USD-positive policy optimism at the start of the year but given the momentum, markets have started to consider the euro climbing above 1.20-type levels more persistently.
“…We remain reluctant to look for EUR-USD to move persistently into the 1.20-range for now…And low oil prices remain one of the key reasons why we do not expect a higher regime for EUR-USD for now.
Longer-term EUR of 1.20+ feels more consistent with oil closer to the low-mid $60 range, which we have not seen since the 2014 OPEC episode. Our commodities team sees medium-term oil prices averaging $50-$70/bbl through 2022, but less likely to be higher in the near term.
Of course, EUR-USD is not far at all from 1.20 at the moment, but to make a more persistent move into a 1.20+ range would at least represent a sharper break from its usual relationship to oil, in our view,†BofAML argues.
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