EUR/USD could re-take 1.20 should oil break higher - BAML

Analysts at BAML are out with their outlook on oil and its impact on the EUR/USD pair, highlighting that a break higher in oil could drive the EUR/USD pair higher.

Key Quotes:

The rally in EUR-USD this year has been in part a result of a constant tide of negative US political news, reversing the USD-positive policy optimism at the start of the year. Given the momentum, markets have started to consider the euro climbing above 1.20-type levels more persistently over the next year, which would indeed be above our own estimates of fair value for EUR/USD.

Our views of the euro are on the pessimistic side, focused on a longer-term 1.15-type level, and we still remain skeptical in terms of expectations for a new substantially higher EUR/USD regime. One key factor for our skepticism is that EUR-USD and oil prices have diverged, although they generally have broadly moved together

Given our commodities team still looks for WTI in the low $50-range by the end of next year and averaging $50 over the entirety of 2018, we remain reluctant to look for a persistently rising euro from here.