Credit Agricole CIB Research sees limited scope for further EUR/USD decline in the near-term.
"The EUR has emerged as one of the worst performing major currencies so far this week. Escalating geopolitical tensions with Russia have conspired with returning risk aversion, on the back of soaring UST yields, and elevated energy prices to send EUR/USD lower. Lurking in the background are yet more risks ahead of the Italian presidential election next week," CACIB notes.
"While things may be starting to shape up as another perfect storm for the EUR, we think that the storm will ultimately pass. In particular, we think that improving global growth conditions in the coming quarters should boost both risk sentiment and the Eurozone outlook, as the current stagflationary risks abate. In turn, this could help reduce the (real) rate disadvantage of the EUR while attracting fresh inflows into the Eurozone equity markets," CACIB adds.
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