EUR: A Selection of Most Recent EURUSD Analyst Views
Jun-26 11:25
- Although off its best levels, EURUSD continues to operate above 1.17 as markets assess the latest comments on the Fed’s leadership ahead which have weighed on the greenback. Additionally, the euro continues to benefit from the markets’ positive view on fiscal expansion, driven by renewed defence and security investment in Europe. Following this move to fresh cycle highs on Thursday, here are a selection of most recent analyst views on the pair:
- *Rabo: The break above 1.17 today is further evidence of both USD weakness and the attractiveness of the European renaissance story. That said, just as USD weakness is a boon to US exporters, EUR strength is a headwind for European companies which are already under fire from tariff related uncertainties. Economists expect that German growth will remain lacklustre this year and further sharp gains for the EUR could unleash ECB doves. Also, positioning may be becoming stretched. Thus, while Rabo have brought forward their 1.20 forecast from an 18-m view to 12-m, Rabo do not expect the move to be a straight line. They continue to see scope for pullbacks in favour of the USD on a 3m view.
- *SocGen: While EURUSD is mimicking the trajectory we saw in 2017-2018, the currency parallel is stronger than the economic one. At the moment, the US consensus growth forecast for this year is steady around 1.4% after collapsing in March/April from 2.3%. Eurozone forecasts are just beginning to rise from a low of 0.8% earlier this month to 1% now. But maybe all the euro needs to move higher is for US growth forecasts to stay anchored while the Eurozone consensus inches slightly higher.
- *BofA stay constructive on EUR for the rest of the year, particularly vs JPY, CHF, USD and except vs GBP and the Scandies. Potentially continued rotation into domestic assets, European asset managers' hedging needs, and European fiscal are some supportive factors. In the past month EUR performed well across the board but geopolitics suggests caution. BofA continue to forecast EURUSD at 1.17 by end-25 and 1.20 by end-26.
- *ING: Notably, geopolitical risk has been radically priced out, and most importantly, FOMC divisions have prompted material dovish speculation. This justifies a more bullish view on EURUSD, but not necessarily a call for 1.20. Markets' enthusiasm for an earlier Fed cut may be misplaced, and EUR/USD may settle back around 1.15-1.16, awaiting conclusive information on inflation.
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BONDS: US and UK Roll pace update
May-27 11:22
- WNA: 60%.
- USA: 60%.
- UXY: 50%.
- TYA: 59%.
- FVA: 59%.
- TUA: 60%.
- Gilt: 68%.
OUTLOOK: Price Signal Summary - Bull Cycle In Bunds Remains In Play
May-27 11:21
- In the FI space, the recovery in Bund futures that started May 15 suggests the move down between Apr 22 - May 15, has been a correction. A stronger resumption of gains would strengthen the reversal and signal scope for a climb towards 132.03, the Apr 7 high. Today’s gains reinforce a bullish theme. Key short-term support to watch is 129.13, the May 15 low. A break would be bearish and mark a resumption of the recent bear cycle.
- A bear cycle in Gilt futures remains in play and last week’s move lower reinforces the bearish theme. The contract has recovered from its recent lows - gains are considered corrective and this is allowing a short-term oversold condition to unwind. The bear trigger has been defined at 90.11, the May 22 low. Key short-term resistance to watch is 91.87, the May 20 high (pierced). A clear break of this level is required to highlight a stronger reversal.
EUROZONE ISSUANCE: E110bln Investment 2025 Points Towards Ramp-Up In Cash Needs
May-27 11:09
German finance minister Klingbeil has mentioned he is planning to increase 2025 government investment in the country to E110bln according to Reuters. While current net issuance estimates are a bit unclear against the background of 2025 budget details still to be announced, the comments point towards cash needs in Germany potentially ramping up quicker than anticipated.
- German government "investment" was E58.5bln in 2024. The E500mln infrastructure fund passed as part of the debt brake loosening in March is planned to be spent over 12 years - that would equate to E42bln/year on average, or E100bln when adding the two figures up. We hypothesise that at least the remaining E10bln could be classified as military spending from a debt brake / funding standpoint but flow into the government's definition of "investment" considering the figures above. Gov't officials recently commented on increasing German military spending to 5% of GDP by 2032 - 3.5% conventional and an additional 1.5% broader infrastructure which can also be used for military purposes.
- The Bundesbank noted in its last monthly report that it expects the "fiscal realignment [as] unlikely to have any impact [in 2025] due to the necessary lead time". Despite "investment" likely lagging behind currently following preliminary budget management, a pickup to E110bln in 2025 should constitute a risk towards a higher deficit / net issuance already in 2025.
- Klingbeil has previously mentioned he is looking to gain internal coalition agreement for the 2025 budget by 25 June, and parliamentary passing by mid-July ('Klingbeil Doesn't Oppose Scope For Higher NATO Spending' - May 15).
- DFA will publish its Q3 funding outlook in late June. It has flagged considerations to revive the 7y and 50y segments (potentially already in H2) on the back of the increased cash needs. In our view, 7-year Bunds would be well received but it may not be the best time to launch an ultra-long Bund given the steepening of yield curves globally.
