Weak euro area economic data this week have fuelled the concerns about other potential volatility-inducing events in August putting more pressure on the EUR, says Barclays Capital.
“Factory orders in Germany and Q2 GDP data in Italy came in significantly weaker than consensus, raising concerns about the impact of geopolitics for the euro area economy and raising more concerns about Italy’s potential to reform itself under the new leadership,” Barclays notes.
“Lastly, an unconfirmed Reuters report about Brussels potentially dropping the strict supervision of the Greek program by ‘the Troika’ also brought further volatility to peripheral spread,” Barclays adds.
In line with this view, Barclays continues to forecast EUR/USD to reach 1.28 by year-end and sees the EUR as our favoured funding currency against selective EM carry, even in a less-than-ideal environment for risk sentiment.
On the technical front, Barclays technical strategy team is still looking to see sustained downward momentum on EUR/USD targeting the 1.3220/50 area or else the 1.3015 area in the near term.