ANZ Research discusses EUR/USD outlook and targets the pair at 1.28 by end of 2021.
"As the world’s largest trading bloc, the EA is benefitting from an improving global trade outlook. The ECB’s concerns about the disinflationary impulse of sustained EUR appreciation is valid, but it is relatively powerless to combat the euro’s rise. Deflation is propping up real EA interest rates and the large current account surplus is a structural positive for the currency," ANZ notes.
"However, we anticipate that verbal intervention will become more frequent as the ECB inevitably tries to slow the euro’s rise. We think that the central bank’s redline is closer to 1.25, whilst PPP estimates put fair value for EUR/USD around 1.30. We do not anticipate EUR strength undermining the unfolding, if uneven, EA recovery which is expected to accelerate from Q2 onwards," ANZ adds.