EUR: Outlook On CB Reverse Flows Supports Our Bearish EUR/USD View - BofAML

Bank of America Merrill Lynch discusses the EUR outlook in light of the latest Q1 COFER data.

"The increase in EUR share of reserves in Q1 (from 20.2% to 20.4%) was less than expected...That said, we are less optimistic on the prospects of further CB diversification into EUR over coming quarters. The widening in Italian spreads late May and rising uncertainty on institutional reforms in the Eurozone will likely dampen demand for EUR assets. 

The turn in sentiment towards EUR reserve holdings should also support our bearish EUR/USD forecasts as the headwinds from the official sector dissipate into Q3, allowing the USD to benefit more from strong fundamentals and repatriation flows," BofAML argues.