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Economists at Credit Suisse expect the EUR/USD pair to remain in a mild downtrend while there is an asymmetry to further rate differential widening. Their expected Q2 range is 1.14-1.21 and they like to sell rallies towards 1.20.

The euro is not helped by poor EU vaccine rollout

“At its March meeting, the European Central Bank said it would conduct PEPP asset purchases at a ‘significantly higher pace than during the first months of this year’. This is in line with a clear and explicitly stated intention to suppress yields and resist the upward pressure stemming from the rise in US Treasury yields.”

“We target EUR/USD 1.15 during the quarter, and only see a sustained bounce after EU vaccinations clearly ramp up and/or the European Recovery Fund spending plans impress.”

“Loose monetary conditions, which include a softer EUR, are contributing to both strong equity markets and rising inflation expectations in the euro area. This will encourage the ECB to carry on with its current plan, especially while the underlying economy remains fragile, prone to lockdown risk and lacking a US-style fiscal impulse.”

“EUR/USD implied volatility remains low while risk reversal skews are neutral, suggesting that current FX levels are not associated with discomfort by the market. We suspect a move below 1.12 would be needed to create materially higher anxiety.”