USD outlook sours but the EUR carries risks - Rabobank

"While slowing US growth, a plateauing of Fed interest rates and potentially increased focus on the widening US budget deficit all argue for a deterioration in the outlook for the USD next year, there are also downside risks for the EUR," argue Rabobank analysts.

Key quotes

"While there is a threat to the EUR from politics next year, the Eurozone growth outlook may also be a disappointment. Final German Q3 GDP data has confirmed the economy contracted by - 0.2% q/q. There is hope for a bounce back in the final months of the year led by the auto sector. However, German November manufacturing PMI data have disappointed."

"In addition, a slowdown in world trade growth and the fall-out from Brexit could present downside risks to growth in Q4 and into 2019. On the assumption that US growth will be slowing in 2019, the market is likely to question whether the ECB can follow through on its guidance of higher rates in H2 2019. A more dovish ECB would also weigh on the outlook for the EUR."

"It is currently our view that the souring of US fundamentals will allow EUR/USD to turn modestly higher into the middle of next year. However, headwinds for the EUR could generate downside risks. Meanwhile in an environment of slowing world growth and political risks in the Eurozone we see scope for the safe havens JPY and CHF to perform well. We are forecasting USD/JPY at 110 on a 9 to 12 month view. We see EUR/CHF at 1.10 in 9 to 12 months and USD/CHF at 0.96."