Expecting A Gradual Recovery Through 1.11 By Year-End - UOB

UOB Research discusses EUR/USD outlook and revises its targets to 1.09, 1.10, and 1.11 in Q2, Q3, and Q4 respectively. 

"After a volatile 1Q20 that brought the US Dollar Index (DXY) to a 3-year high of 103 in late March, the USD has since fallen and consolidated around 100 as the liquidity crunch tapers. Also, the emergence of US as the major epicenter of the COVID-19 pandemic probably means that the route to recovery for US compared to its G7 peers is more tenuous and may need further monetary and fiscal support, curbing demand for the USD further.

Since touching a low of 1.0638 on 20 March, trading tone in EUR/USD has clearly improved, helped yet again by the “do what it takes” moment by the ECB when it unleashed a EUR 750 billion Pandemic Emergency Purchase Programme (PEPP) on 18 March. To further secure the post-COVID economic recovery, talks are also underway between leaders of EU nations for a mid-term to long-term Recovery fund. The strong resolve amongst policy makers prompted an intense short covering in the EUR/USD, with short contracts slashed by two-thirds across March," UOB notes.

"As such, it is no surprise EUR/USD is now supported above 1.08. With the much improved tone, we tweak our EUR/USD point forecasts modestly higher in the coming quarters from our March review while keeping the gradual upward trajectory," UOB adds.