While the ECB is still cautious and unlikely to provide a positive catalyst for EUR any time soon, the EUR/USD uptrend which started this month should remain in place. Plenty of bad news has now been priced in, the currency has been trading with a persistent risk premium over the past few months
The first quarter was rather dismal for eurozone economic data but this is likely to change in coming months as the pace of vaccination picks up. Improving eurozone data should translate into some upside for the euro. Indeed by summer, eurozone growth should be more synchronised with the US
This suggests that plenty of good news is already priced into the dollar (as opposed to plenty of bad news being priced into the euro). This, coupled with the Federal Reserve presiding over deeply negative front-end US real rates (as US CPI inflation will rise meaningfully this quarter and the Fed sticks to its Average Inflation Targeting framework), should weigh on the dollar, which has already seen a meaningful positioning adjustment
All this suggests higher EUR/USD in coming months and we expect the pair to reach and break the 1.25 level this summer.
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