EUR/USD: 3 Reasons For A Correction Towards 1.15 - ABN AMRO

ANB AMRO FX Strategy Research expects that the EUR rally will run out of steam in the near term on the back of the following 3 reasons. 

"1- For a start, we expect ECB President Mario Draghi to dampen expectations about early rate hikes. The ECB is concerned that tapering will trigger a tightening of financial conditions and seems focused on tapering without triggering a tantrum.

2- Moreover, recently the yield spread between the US and Germany has widened a bit again, while EUR/USD has continued to be strong. We think that the yield spreads (nominal and real yields) do not justify EUR/USD being at current levels. Therefore, we think that that EUR/USD has overshot. 

3- Furthermore, we expect sentiment towards the US to improve somewhat, which should result in the US dollar reacting positively to better than expected US economic data again such as last Friday," ANB AMRO argues. 

Therefore, ABN AMRO thinks that it is likely that EUR/USD will struggle to move higher from here and could test 1.15 on a profit taking wave on long positions in the near-term.

Source: ABN AMRO Research