Synopsis:

BNPP maintains a bearish outlook on EUR/USD, targeting 1.06 by year-end. This view is driven by US economic outperformance, expected ECB rate cuts, and downside risks including potential tariffs under a Trump victory.

Key Points:

• US Economic Outperformance: Growth in the US continues to exceed that of the eurozone.
• ECB Rate Cuts: BNPP expects the ECB to deliver two more cuts in 2024, while the Fed's first cut is anticipated in December.
• Downside Risks: The US election poses a downside risk to EUR/USD, particularly if Trump wins and imposes tariffs, which would negatively impact the open, export-driven eurozone economy.
• French Elections Impact: The outcome of the French parliamentary election strengthens the case for a decline in EUR/USD. France's fiscal trajectory, including required cuts to public spending to comply with EU rules, higher borrowing costs, and policy uncertainty under a divided government, could weigh on French growth.
• Moderating Factors: The degree of EUR downside may be moderated by gradual improvements in eurozone activity and an ongoing current account surplus.

Conclusion:

BNPP remains bearish on EUR/USD, with a year-end target of 1.06, influenced by US economic strength, ECB rate cut expectations, and risks associated with the US election and French fiscal policy. However, improvements in eurozone activity and the current account surplus may moderate the extent of the decline.