EUR: Retaliation? - Rabobank

Jane Foley, senior FX strategist at Rabobank, points out that improved risk appetite has sapped the strength of the USD as EUR/USD has pushed higher towards the 1.1280 area to its best levels for over a week. 

Key Quotes

“Although this has reawakened the risk of a recovery towards the 1.1300 area, we are not confident that the EUR’s fundamentals can justify a sustained move back to these levels and we continue to see risk of a break below the EUR/USD1.12 level in the coming weeks.”

“The Eurozone economy is currently being buffeted by a range of negative factor. Growth is weak, European parliamentary elections are looming, Brexit is on the doorstep and now trade tensions with the US have taken a turn for the worse.  The Trump administration is reported to be proposing tariffs on $11 bln of EU products in response to EU subsidies to support Airbus.  This is the culmination of an issue that has been simmering for 14 years.”

“Tomorrow, the ECB Council meeting will provide policy makers with a fresh opportunity to air their views on the economic risks currently facing the region. ECB President Draghi last month showed more of his hand than expected and the dovish policy outlook is set to be reinforced tomorrow.”

“Slowing growth is never good news for incumbent politicians. Opinions polls suggests that the far left and far right populists are set to perform well in May’s EU parliamentary elections.  This outcome is likely to add to the concerns of investors.  We see risk that EUR/USD can trade lower in the 1.10 area on a 3 to 6 month view.”