Synopsis:

ANZ maintains a neutral stance on the USD and EUR/USD heading into the week, noting that soft U.S. data may begin surprising to the upside as tariff fears fade, while the ECB is expected to deliver a dovish rate cut amid weak EU data. Still, both currencies remain driven more by broader policy risks—especially U.S. fiscal and trade uncertainties—than by near-term data.

Key Points:

• USD Outlook:

  • Soft vs. hard data divergence: Despite weak sentiment surveys, hard data (jobs, consumption) remain resilient.

  • Recovery potential: May’s stronger-than-expected PMIs and Consumer Confidence hint at upside surprise in soft data.

  • Key test ahead: This week’s ISM and Non-Farm Payrolls will test the “resilient growth” thesis.

  • Policy headwinds persist: US fiscal concerns and trade policy uncertainty—especially post Trade Court ruling against tariffs—cap USD upside.

  • Tactical view: USD strength may show vs. CHF and JPY, but broader performance likely muted.

• EUR Outlook:

  • ECB to cut 25bp: A well-telegraphed cut expected this week, with emphasis on dovish tone due to continued economic softness and disinflation.

  • EUR/USD dynamics: Past ECB rate cuts moved EUR/USD depending more on tone and forecast than the cut itself.

  • Short-term downside risk: Weak data and ECB dovishness could pressure EUR/USD by 0.5–1% this week.

  • External drivers: EUR/USD remains tethered to U.S. fiscal and tariff narratives more than European macro alone.

Conclusion:

While improving U.S. soft data could offer the USD marginal support, broader macro risks—especially policy uncertainty—limit the dollar’s upside. Meanwhile, an expected ECB cut and soft EU data may temporarily pressure the EUR, but EUR/USD remains largely range-bound due to the dominance of U.S. policy risks. ANZ stays neutral on both USD and EUR/USD near term.