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Jun 07 - 09:55 AM

ANZ: We Stay Long EUR/USD Targeting 1.11; Any Pullback Likely Limited

By eFXdata  —  Jun 07 - 08:17 AM

Synopsis:

ANZ maintains a long position on EUR/USD, targeting a move towards 1.11. Despite the ECB’s recent 25bp rate cut and mixed forward guidance, ANZ believes that the EUR/USD pair will benefit from Europe’s slow but steady economic recovery and sees limited potential for significant pullbacks.

Key Points:

  1. ECB Rate Cut Impact:

    • The ECB’s recent 25bp cut did not significantly impact EUR/USD, mainly due to the ambiguous forward guidance provided at the meeting.
    • Diverging views within the ECB's Governing Council contributed to the vagueness, with some members suggesting further cuts in July, while others advocate maintaining restrictive policies.
  2. Inflation Forecasts and Economic Recovery:

    • The ECB’s revised forecasts indicate that inflation is not expected to return to 2% until the latter half of 2025, suggesting a prolonged and gradual easing cycle.
    • This slow easing process could marginally benefit the EUR, particularly against currencies like CAD and CHF, where sharper easing cycles are anticipated.
    • ANZ believes the ongoing slow and steady economic recovery in Europe will provide a more favorable backdrop for the EUR over time.
  3. Focus on US Data and FOMC:

    • With a lack of significant local data next week, the market’s focus will shift to US data and the FOMC meeting.
    • ANZ expects that pullbacks in EUR/USD will be limited, supported by the current economic conditions and the ECB’s cautious approach to easing.

Conclusion:

ANZ remains bullish on EUR/USD, targeting a move towards 1.11. They believe that Europe’s gradual economic recovery and the ECB’s prolonged easing cycle will support the EUR. Despite mixed signals from the ECB’s Governing Council, ANZ anticipates limited pullbacks in EUR/USD, with attention turning to upcoming US data and the FOMC meeting.

Source:
ANZ Research/Market Commentary

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