ANZ Research discusses EUR/USD outlook and adopts a bearish bias in Q2 targeting a move towards 1.08.
"Despite the prolonged narrow range-trading in EUR/USD, we view the risks as skewed towards EUR downside in coming months. Both the US Fed and European Central Bank (ECB) moderated forward guidance on interest rates last month, removing expectations that interest rates will rise this year. That has contributed to falling volatility, but we are unconvinced that this can last much longer," ANZ notes.
"The yield curve inversion cannot be ignored, but unlike previously, US wages, inflation and confidence measures are strong. We think the inversion has more to do with a reach for duration than a downturn in growth expectations. On current and expected developments, we don’t see the Fed cutting interest rates this year. As US growth and interest rate expectations recover, we could see USD outperformance," ANZ dds.