Bank of America Merrill Lynch Research discusses EUR/USD outlook and continues to see the pair at a 1.20-1.25 range this year, while acknowledges that the risks to its forecasts have shifted to the downside.
"Our constructive view on the EUR this year may need more time to play out. Our estimates suggest that EURUSD is undervalued by about 7 percent. This is primarily because of the USD overvaluation. EUR is actually overvalued against GBP and JPY...Mixed US data and a dovish Fed should have helped to bring EURUSD back to equilibrium, between 1.20 and 1.25, which is also our forecast range. However, the Eurozone data remains very weak, the ECB tone has turned dovish, and the EUR remains very vulnerable to Brexit risks and trade tension," BofAML notes.
"Still, our baseline scenario for the global economy is consistent with a stronger EURUSD in the months ahead. It is not hard to argue that EURUSD will appreciate following US-China and US-EU trade deals, a Brexit deal, and improvement in China data following recent policy stimulus. The Eurozone data has been surprisingly weak and could rebound in this scenario. The ECB could start talking again about rate normalization. A number of things have to go right for EURUSD to strengthen, but we remain optimistic. It could just take more time than we have been expecting," BofAML adds.