NAB Research discusses EUR/USD tactical outlook and adopts a neutral bias in the near-term.
"Germany will need a US-China trade deal to more meaningfully draw a line under weak exports. On the latter the outlook is not encouraging. Of course the US and China could come together on trade at any stage, but with the US enacting higher tariffs and China yet to respond, the scene is set for more ‘talking while fighting’," NAB notes.
"As that process continues, highly emotional markets will wax and wane. With an export share of an elevated 47%, Germany stands to lose out again on any prolongation. That notion is a medium to longer-term dynamic however and in the short-term – as was seen last week – the EUR could be susceptible to short-term bouts of strength as investors unwind short EUR/EM carry trades, as risk is dialled back. EUR/USD is back above 1.12, but we don’t think spikes will sustain a break above 1.1325 in this round," NAB adds.