Economists at Nomura identify three risk exposures pushing EUR/USD lower into Q2 2022. However, the pair is likely to recover towards 1.14 by the end of 2022.
EUR/USD to inch closer towards parity if fresh extremes in energy prices lead to factory closures
“There are three types of exposure that risk pushing EUR lower: 1) higher energy prices in a very Russian gas & oil dependent Europe; 2) higher food prices and; 3) the cost of sanctions for European banks. Given these risks, we revise down the profile of our EUR/USD forecast to 1.08 in Q2, but with a stronger recovery likely from Q3 to 1.10, 1.14 by year-end 2022 and 1.20 by end-2023.”
“EUR support ahead would likely emerge from an easing of the Russia-Ukraine conflict, a possible Iran nuclear deal or OPEC output surprise that helps to stabilise energy prices, a shift towards more positivity on the euro area growth outlook and increased expectations of ECB monetary policy normalization (a hike in December goes ahead).”
“The negative risks for EUR include an extended geopolitical crisis that intensifies further into Q3, which could lead EUR/USD even closer towards parity of around 1.02-1.03 if we see fresh extremes in energy prices lead to factory closures.”