MUFG Research discusses EUR/USD outlook and expects limited downside in the near-term targeting the pair at 1.15 by end of June before recovering towards 1.18 in Q3 and 1.20 by year-end.

"The 2-year EU-US swap spread fell by a substantial 37bps in May and in that context EUR/USD fell relatively modestly. This was in part down to the ECB being more explicit on plans for monetary tightening. Most of the communication from ECB officials pointed to an intention to hike rates in June.," MUFG notes.

"With ECB tightening now well priced, the upside momentum has faded and given the backdrop of continued uncertainties over the conflict in the Middle East, near-term downside EUR risks remain. However, assuming a deal is finally reached, we see EUR/USD recovery unfolding in the second half of the year," MUFG adds.