Research Team at Goldman Sachs, has maintained their EUR/USD forecasts of 1.04, 1.00 and 0.95 in 3, 6 and 12 months, which they reverted to on January 21. Key Quotes “We also maintain our $/JPY forecasts of 122, 125 and 130 in 3, 6 and 12 months. The current GSDEER for EUR/$ is 1.24 and for $/¥ is 102. Motivation for Our FX View: The Dollar has appreciated by 22% on a broad trade-weighted basis from the middle of 2014 to now. This was first led by gains against the major currencies – including the EUR, JPY, AUD, NOK and SEK. More recently, gains have come against EM currencies. We believe this will be temporary and the focus will shift back to the G10 as a result of US cyclical outperformance. We continue to expect domestic factors to drive the USD much stronger. In the near term, we think that US growth concerns are overdone. Longer term, we expect US growth to continue to outperform its G10 peers and the short rate differentials to continue to move higher, in support of the USD. Furthermore, after more than a decade of USD weakness, markets are under-positioned for a stronger USD. We believe the longerterm bull-trend in USD is set to resume. Monetary Policy and FX Framework: The Fed has a dual growth and inflation target. The exchange rate floats freely. The US Treasury is in charge of FX policy, although the Fed occasionally also comments on currency movements, to the extent they affect the inflation and growth outlook. Growth/Inflation Outlook: US activity appears to have slowed in 2015H2, and the recent tightening in financial conditions could again weigh on growth in 2016H1. However, trends in the labour market remain broadly positive, supporting our call for strong domestic consumption growth. Although the pace of job gains will likely slow, we expect it to remain well above the trend needed to continue to reduce labour market slack. Longer term, we think that the US is still in the early stages of a multi-year above-trend growth cycle. However, there remains a substantial amount of slack in the economy. As such, inflation has only just begun to pick up, and we expect it to remain benign in the years to come. Things to Watch: Any push back in Fed tightening expectations could stall the USD appreciation trend.” For more information, read our latest forex news.