EUR/USD Recovery Fades Amid Downside Risks

The EUR/USD has slightly recovered after hitting fresh cyclical lows at 1.1215, according to Brown Brothers Harriman's Elias Haddad. The currency pair has found support at key levels of 1.1200 and 1.1111.

Despite the Eurozone's mixed CPI numbers keeping inflation above target, allowing the European Central Bank (ECB) scope for further hikes, stronger US growth and France's worsening budget situation leave EUR/USD risks skewed to the downside over the coming months.

The ECB has a clear path to deliver more rate hikes due to the higher-than-target inflation rates. The swaps curve indicates nearly 75bps of tightening to 3.25% in the next twelve months, limiting policy divergence with the Fed and the drag on EUR/USD.