Likely to crash below 1.10 by mid-2022 – SocGen

Société Générale strategists see EUR / USD at 1.09 in their outlook for next year. In this scenario, the Fed rate hike cycle would begin in mid-2022. In the bullish scenario, the EUR / USD reaches 1.15, and in the bearish, it reaches 1.06, it would eliminate the possibility of a hike.

Base assumption for the second quarter of 2022 (50% probability)

EUR / USD in 1.09. The Fed rate hike cycle started in the middle of the year. While there are 110 basis points of hikes included in the price for 2022/2023 (compared to 25 basis points for the ECB), we expect that by the time the Fed acts, it will be more appreciated on the US curve than it is now and that EUR / USD will have fallen below 1.10 “.

Upward Scenario (25% chance)

EUR / USD in 1.15. The upside risk scenario for EUR / USD weighs two factors against each other. First, you can bring forward the Fed’s tightening forecasts, as the economy does even better than expected. Second, it can further influence the ECB’s expectations for adjustment. It is not only that a faster withdrawal from COVID-19 would have less impact than what is included in the price in the US curve than in the eurozone curve, it is also that a rethinking of the ECB rates could have a greater impact. psychological”.

Scenario downside (25% probability)

EUR / USD in 1.06. The downside scenario must be apocalyptic to remove Fed rate hikes from the table in 2022. In the United States, the danger is that from the current starting point of very strong nominal GDP growth, the Omicron variant increase inflationary pressures as growth slows. On the contrary, the European recovery is holding the United States back and any talk about the ECB tightening could fade. There is some risk aversion and we will probably get a lower EUR / USD rate than our base case, although from here on, the drop is limited. “

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