JP Morgan discusses the EUR outlook and adopts a mildly bullish bias over the coming months.
"The mildly constructive EUR forecast envisages a belated lessening in cyclical headwinds that should enable a modest EUR recovery in line with the pull from cheap valuation and record balance of payments support. Notably, EUR’s basic balance surplus has increased to 5.5% of GDP versus modest deficits in the US and Japan, helped by ongoing foreign inflows to Euro area equities in recent months (€40bn per month for the past six months). This underlying surplus should cushion the EUR against further cyclical disappointment while leveraging it to genuine reflation in the region," JPM notes.
"The 1Y EUR/USD forecast is set at 1.14to account for the lessening in cyclical tail risks, the euro's underlying balance of payments support, and a certain hint of a US political risk premium in election year. But while EUR’s structural factors are compelling,they won’t fully compensate the currency should the economy continue to underwhelm, certainly not given the ongoing drag on short-term capital flows from still sizeable negative interest rate spreads to USD," JPM adds.