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The Euro to Dollar exchange rate (EUR/USD) is being tipped to advance over the course of December, a traditionally strong month for this pair.

Strategists at investment bank Nomura are 'long' the Euro heading into the final month of 2022, saying seasonal trends are strong at this time of the year.

Research shows on average since 1980, EUR/USD has appreciated by 1.2% with a hit ratio of 60%.

Above: "G10 FX seasonality by month. Average returns vs USD since 1980" - Nomura.

But Nomura analyst Jordan Rochester notes the exchange rate is already up 5% for November and he therefore wouldn't place too heavy an emphasis on seasonal factors this time around.

Instead, it is a list of compelling macroeconomic factors that Rochester cites for going 'long' on EUR/USD, targeting a move to 1.08 by mid-December.

"Rather, it's likely to be the macro and flow factors that determine the next four weeks of price action," says Rochester in a note dated November 29.

Nomura research identifies a strong demand for EUR Exchange Traded Funds (ETF) and "inflows have continued to pour in".

Data shows inflows into Eurozone ETFs are now at levels last seen in August 2021.

European PMIs for November meanwhile indicated that although economic activity is below the crucial 50 level, and therefore suggests contraction, the situation is not deteriorating.

Another driver behind expectations for further Euro gains against the Dollar includes signs U.S. energy prices continue to soften, making it likely PPI inflation continues to soften in response. In turn, this would feed the narrative that U.S. inflation has peaked and the Federal Reserve can enter the tail-end of its interest rate hiking cycle.

The Euro's correlation to U.S. rates meanwhile continues to fall, "hence why it's shrugging off hawkish Fed calls) and it’s mainly an equity trade," says Rochester.

"It's quite possible we end up with a set of events that allow for yet again another EUR outperformance story into year-end," says Rochester.

What could upend expectations for a cheery December for the Euro?

"The risks are building in the weather forecast... we will need to closely monitor the weather forecast and natural gas futures, as the latest GFS run suggests a cold snap in Europe come mid-December that could change the mood music if parts of Europe face blackouts. UK day-ahead prices have spiked dramatically higher thanks to low wind production for example," says Rochester.