Rabobank - "This week our long held target of EUR/USD1.35 was breached. While this vindicates our non-consensus view with respect to the upside potential in this currency pair, the pace of gains in the EUR and the market’s current blasé attitude towards negative macro-economic news has made us uncomfortable at these levels. In last week’s FX Outlook “EUR – poor hand in currency wars” we outlined our view why EUR/USD has the capacity to trade higher.
While we have revised our 12 mth EUR/USD forecasts to 1.40 to reflect both our negative USD view and the expectation that the EMU crisis will continue to lurch towards a solution, we do not think that the road ahead will be smooth. On the anticipation that tension in the Eurozone will raise its head again, we see risk for a potentially aggressive pullback in EUR/USD before 1.40 is in the sights."