Barclays Research discusses EUR/USD tactical outlook and flags a scope for a downside risk within the pair’s recent broad range.
“A rebound in the USD will likely add downward pressure on EURUSD this week, although our base case remains that the pair will remain broadly range-bound.
Numerous factors continue to point to further EUR potential downside. First, euro area growth is moderating and could be further negatively affected by a potential US-EU trade war. We estimate that if the US implements its threat of a 25% car tariff against European car imports, 2019 Euro area growth could be hit by as much as 0.4pp, down from 1.6% to 1.2-1.3%
Second, a no-deal Brexit, as we have been arguing recently, would still have a significant effect for Europe, given that the UK is a major trading partner.
Third, while we expect no major escalation of political risks in Italy before the European elections, the current equilibrium is very fragile, especially against a backdrop of decelerating economic activity and banking sector fragilities,” Barclays argues.
“All of the aforementioned makes us think that risks to the single currency still skew to the downside,” Barclays adds.