Synopsis:

ANZ maintains a bullish medium-term view on EUR/USD, targeting 1.20, and sees recent headline-driven weakness as transitory. While geopolitical risks—particularly in the Middle East—are weighing on the euro near term, ANZ expects Fed rate cuts and diverging EU-US growth dynamics to support EUR/USD appreciation in the months ahead.

Key Points:

Headline-Driven Volatility:

• Recent EUR downside is primarily a response to geopolitical headlines, especially concerning the Middle East.

• The tail risk of Iran shutting the Strait of Hormuz is noted but deemed unlikely to trigger a global energy crisis on the scale of the Ukraine war.

Short-Term Outlook: Volatile but Contained

• ANZ expects EUR/USD to remain volatile and mildly negative in the coming week.

• However, they see this weakness as temporary, not fundamentally driven.

Medium-Term Bullish Drivers:

• Fed expected to begin easing from Q3, reducing USD support.

• Economic momentum is diverging in favor of the Eurozone relative to a slowing US.

• These factors should underpin sustained upside in EUR/USD.

Trade Strategy:

• ANZ recommends using short-term dips in EUR/USD as buying opportunities, with a target of 1.20 and a stop at 1.13.

Conclusion:

ANZ sees short-term EUR/USD weakness as a tactical dip, not a reversal of trend. With Fed cuts approaching and EU-US fundamentals diverging, EUR/USD is expected to move higher over the medium term. Dips below current levels offer attractive entry points for positioning toward a 1.20 target.