Synopsis:

ANZ expects EUR/USD to trade within a 1.11–1.13 range in the coming week, citing soft Eurozone PMI data, waning economic surprise momentum, and limited upside catalysts. With ECB easing priced in and geopolitical factors adding uncertainty, downside risks outweigh upside potential.

Key Points:

• Soft Eurozone PMIs Undermine Growth Narrative:
  EA composite PMI fell to 49.5 in May vs. 50.6 expected, led by a steep drop in services new business. Germany’s services PMI hit a 2.5-year low at 47.2, challenging optimism around EUR on growth differentials.

• Muted Reaction Expected from Upcoming EU Data:
  Next week’s negotiated wages and inflation expectations are unlikely to shift EUR materially, with ECB easing expectations already priced.

• Geopolitical Risks Pose Event-Driven Volatility:
  Informal Russia-Ukraine ceasefire discussions and G7 FX negotiations may cause headline-driven volatility. While there are fears of a USD-weakening deal, ANZ notes no firm signal from the US suggesting such a move.

• Focus Shifting to US Data and Fiscal Risks:
  The EUR remains vulnerable to stronger-than-expected US data, which could rekindle USD demand. Conversely, geopolitical de-escalation or risk-off shocks could modestly benefit the USD.

Conclusion:

ANZ sees the EUR/USD facing resistance near 1.13 and fading optimism amid soft European data. They expect range-bound trading between 1.11 and 1.13, with greater downside risk if US data strengthens or safe-haven flows return.