TD with comments on the EU economy, the European Central Bank and euro, in brief
Euro area growth has slowed materially
- broad-based contraction in industrial output
- several one-offs as well as uncertainty over trade 9key risk) and Brexit
- see scope for a recovery in Q1
more domestic-focused sectors of the economy appear solid
- consumer resilient
- wages accelerating
- credit growth strong
we continue to expect ECB lift-off in September
We maintain a bullish strategic outlook on EURUSD for now, but recent developments have seen our level of conviction moderate.
- We expect the USD to trade on a softer footing overall. In the Euro area however, sluggish growth, ongoing political tensions, and lackluster core inflation pressures mean it may be some time before a strong EUR comes to the fore.
- Stale USD longs in the face of deteriorating dollar fundamentals argue for a grind higher in spot, but we are patient as investors may take near-term cues more from technical factors than macro drivers until more clarity emerges.
Targets:
- spot may be challenged to reach our current end-Q1 forecast of 1.20. Our year-end target of 1.27 still holds if the more significant downside risks mentioned above do not materialize
