Rabobank’s Senior FX Strategist Jane Foley expects interest rate differentials to support an upward bias in EUR/USD in the second half of the year, but sees Euro gains capped by Eurozone growth headwinds from the current supply shock. Foley does not expect EUR/USD to reach 1.20 this year and anticipates any H2 rally will lack strong conviction.

Euro gains capped by growth risks

"While we do expect interest rate differentials to allow an upward bias in EUR/USD to emerge during H2, we anticipate that upside potential in the EUR will be capped by the hit to growth likely to be suffered by the Eurozone as a consequence of the current supply shock."

"Our central view remains that EUR/USD 1.20 will be beyond reach this year."

"However, we continue to view the USD’s credentials as sound and the Eurozone more vulnerable to the current supply shock."

"Consequently, we do not expect the market to rebuild long EUR positions back to last year’s levels and expect any up move in EUR/USD in H2 to lack strong conviction."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)