EUR/USD to move higher on a 6-to-12-month view - Rabobank

EUR/USD is struggling to regain its composure after Monday's plunge. EUR/USD has been ripe for some correction, though our 3-month forecast of 1.15 has already been tested today. EUR to remain on the back foot on a 1-to-3-month view, assuming the Fed adopts a more dovish tilt next year, EUR/USD might head higher in 2026, potentially to 1.20 in the spring, Rabobank's FX analyst Jane Foley reports.

Trade deals topic is unlikely to fade completely for some time

"The rally in EUR/USD in recent months had become over-extended. Added to this, CFTC speculators' positioning data suggest that the market is now short USDs whilst being reasonably long EURs. This also has likely made the currency pair susceptible to short-covering in favour of the USD. Despite its soft stance this week, the EUR remains one of the better performing G10 currencies in the year to date. Since mid-March the EUR has appreciated by almost 6% vs. the USD, boosted by the widely held view that Germany's decision to loosen its debt brake and the resultant injection of infrastructure and defence spending would unleash a wave of stimulus through the Eurozone economy."

"European officials have a need to keep the US Administration onside at a time when Europe is still dependent on the US to support NATO broadly but particularly at a time when Ukraine's future hangs in the balance. Meanwhile, the vague nature of Trump's trade deals means that the topic is unlikely to fade completely for some time. France is continuing to push for champagne and other wines and spirits to be exempt from US tariffs and there are broad uncertainties about how the commitments for energy purchases will be met. Relative high energy costs and, for some industries, constrained access to skilled labour are additional hurdles to European exporters."

"Under these conditions, a strengthening in the value of the EUR will not be welcomed by European exporters. While we expect the EUR to maintain a softened tone in the coming months, RaboResearch now expects the Fed to cut rates four times in 2026, while we expect the ECB to hold rates steady. We consequently expect EUR/USD to move higher on a 6-to-12-month view."