Brown Brothers Harriman’s (BBH) Elias Haddad highlights that EUR/USD is hovering near its 200-day moving average as Eurozone data signal stalling growth and rising inflation pressures. With markets pricing around 75 bps of European Central Bank (ECB) tightening over 12 months, BBH expects EUR/USD to remain confined to a 1.1600–1.1800 range in the near term despite deteriorating confidence.

Weak growth but contained Euro moves

"The Eurozone growth outlook is deteriorating as the energy shock is weighing on confidence. The IFO business expectations index fell to a 32-month low at 83.3 in April (consensus: 85.5) vs. 85.9 in March, signaling the Eurozone economy is stalling."

"Alarmingly, the Eurozone April composite PMI, released yesterday, implied a -0.1% quarterly rate of GDP decline over Q2, and a sharp increase in inflationary pressures."

"EUR/USD will likely trade within a 1.1600 and 1.1800 range in the near term."

"The ECB’s response to the energy shock is conditional on the size and persistence. Small and temporary shock: look through. Large but temporary shock: measured response. Large and persistent shock: forceful tightening. The swaps curve is pricing in nearly 75bps of hikes to 2.75% in the next 12 months, lifting policy firmly above the ECB’s 1.75-2.25% neutral range estimate."

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