RBC maintains a conservative outlook for the EUR/USD, projecting an end-Q2 target of 1.14 and a slight increase to 1.15 by end-Q3. This cautious stance contrasts with broader market expectations for a more aggressive increase.

The EUR/USD rally this year has been driven by March fiscal news from Germany, an April tariff announcement, and a shift in market positioning from net short to net long in EUR/USD, underpinned by options demand.

Assumptions And Expectations

RBC assumes the current tariff status will persist, acknowledging that any change could alter predictions. With no new shocks, the EUR/USD is expected to consolidate rather than break out.

Both the ECB and the Fed are steady on their policy, curtailing rate divergence as a driver for further Euro strength. European ETF inflows have stalled, and Eurozone sentiment along with manufacturing indices remain near neutral, indicating a lack of robust macroeconomic support.

RBC tempers expectations for EUR/USD, with fading catalysts, neutral economic data, and policy stability on both sides of the Atlantic. A consolidative range seems more probable than a breakout within the next few months.

Market Analysis And Positioning

What we’ve seen so far is a steady, data-guided assessment suggesting that the Euro’s climb against the Dollar may well be running out of steam—for now. RBC’s preference for caution stands in contrast to more bullish market participants who might be looking for the pair to push markedly higher in the short term. Their view, as laid out, isn’t without merit. The rally has leaned heavily on specific events rather than an underlying surge in economic progress across the Eurozone. These include a budget announcement in Berlin, shifts in trade conditions, and a notable adjustment in speculative positioning, all now largely priced in.

In essence, RBC sees the pair entering a kind of waiting room—slow movement within a range, suspended between supportive fiscal interventions and a global monetary policy backdrop that’s triggering very few surprises. Rate paths for both the Fed and the ECB are now behaving quite predictably; with this stability in place, the opportunity for sharp directional moves has shrunk. Most drivers of large swings—especially unchecked rate divergence—have effectively been neutralised.

Morgan, for instance, pointed out that macroeconomic momentum inside the bloc remains soft. While not deteriorating, it’s certainly not driving demand for Euros in any convincing fashion either. And with index-based flows like ETFs drying up, we’re faced with less buying pressure from passive investors. That leaves directional bets mostly in the hands of speculative accounts—those more likely to react to day-to-day signals such as forward guidance, real yield spreads, or option skews.

What’s more, tariff policy hasn’t veered, and until something more concrete comes forward, there’s little expectation it will. The scenario remains static. If tariffs were to swing either way—up or down—it would open fresh paths for movement, particularly on the options side. That, however, remains outside the base case for now. We’ll be watching, of course, but only acting once momentum picks up in a sustained, data-confirmed manner.

Looking at our own positioning here, we’re treating the upper boundary of the current EUR/USD range as more of a lean rather than a breakout candidate. For traders with options exposure, this is a period to focus on premium decay and maintain straddle strategies closer to the money. Vega is low, so there’s room to work theta aggressively, though without chasing every pip. Spot moves may offer quick opportunities, but expecting them to follow through without fresh news or a clear break in economic data likely leaves too much on the table.

Powell’s unchanging tone and Lagarde’s measured rhetoric suggest little immediate catalyst from central bank communication. Without that, traders should stay nimble—rather than weighted in one direction—while watching closely for changes in hedging flows that might point to pressure building up under the surface.

The preference is for a tactical approach. Not overcommitting to one side, but instead recognising the value in short-term momentum plays at the edges of the range. If realised vol ticks higher for any reason—unexpected US prints, perhaps—it opens the door to more layered strategies. Until then, there’s merit in targeting the time decay and harvesting what the market is offering rather than forcing positions in the absence of clear directional incentive.

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