EUR/USD is more likely to plummet towards 1.10 than climb to 1.30 – SocGen

EUR/USD formed an intermediate high near 1.2350 in January while recent attempts at crossing this peak were met with stiff resistance as the pair formed a lower high at 1.2270. EUR/USD can only trade much above 1.20 while the Federal Reserve maintains extraordinarily accommodative policy, according to economists at Société Générale. 

1.1770/1.1700 is crucial support zone

“If the Fed, like the ECB and BoJ, found itself trapped at the zero interest rate bound for a very long time, fair value for EUR/USD would be around 1.30, but if the Fed can escape the zero bound and normalise rates, EUR/USD is more likely to go back to 1.10 than test 1.30, even if European governments can resist the temptation to prematurely tighten fiscal policy.”

“If EUR/USD makes a new high for this cycle in the weeks/months ahead, it will be because it is dragged higher by a broadening global recovery as more of the world recovers from the pandemic, which will undermine the dollar. It will not be due to home-made euro strength, and the euro will likely lag a lot of other currencies in the process.”

“Crossing the hurdles of 1.2270/1.2350 will be important for the next leg of the uptrend.”

“ A gradual decline towards the support formed by March lows and a multi-month ascending trend line at 1.1770/1.1700 can’t be ruled out. This will be a crucial zone. Should this break, there will be a risk of an extended decline towards projections of 1.1610 and even towards 1.1495, a 50% retracement of the whole upward move from last year.”