UBS Forecasts Volatile Path Ahead for EUR/USD Currency Pair
UBS Predicts Gradual Rise towards 1.16 by the End of 2025
On Tuesday, UBS, a leading financial institution, projected a volatile period ahead for the EUR/USD currency pair. They anticipate a gradual rise above 1.10 and towards 1.16 by later in 2025. Despite potential short-term risks posed by the US election, UBS remains confident in their forecast for the currency pair.
Factors Influencing the Currency Pair
- USD Strength in October: After experiencing weakness in August and September, the US dollar has made a comeback in October. This resurgence was influenced by a stronger-than-expected US labor market report and robust US PMI data.
- ECB Rate Cut: On the other hand, the European Central Bank (ECB) cut rates in response to lower-than-anticipated European inflation, as seen in their recent meeting. This decision has impacted the EUR/USD exchange rate.
- Upcoming US Labor Market Reports: UBS anticipates a bumpy road for the currency pair, with the upcoming US labor market reports being a key determinant for the Federal Reserve’s future actions. However, the interpretation of these reports may be complicated by external factors such as the recent hurricane Milton.
- US Election: The upcoming US election could inject further volatility into the market, especially with the possibility of an unclear outcome. Despite potential initial dollar strength following a Trump election win, UBS does not view a second Trump administration as unequivocally positive for the USD.
Investment Recommendations
- Selling USD Strength: UBS recommends selling bouts of USD strength, especially in the case of a Trump victory. They advise investors to take advantage of any periods of USD strength, as tariffs could potentially harm US GDP and consumers.
- Opportunity for EUR Investors: UBS maintains a positive outlook on Europe, anticipating a growth recovery leading into 2025. They believe that any positive economic data from Europe could have a significant impact on the euro. Therefore, they suggest that the recent dip below 1.10 in the EUR/USD exchange rate presents an opportunity for investors to reduce USD exposure.
Technical Analysis and Support Levels
- Support and Resistance Levels: UBS identifies the next support level for the EUR/USD around 1.08, with resistance likely at 1.12 and 1.15. While acknowledging risks associated with the US election, UBS suggests there is a greater chance of the exchange rate climbing rather than falling.
In conclusion, UBS’s forecast for the EUR/USD currency pair provides valuable insights for investors looking to navigate the current market conditions. By understanding the factors influencing the exchange rate and following UBS’s investment recommendations, investors can make informed decisions to optimize their portfolios and capitalize on potential opportunities.
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