Why RBC sees limited euro upside from here

RBC keeps its EUR/USD forecasts conservative, with an end-Q2 target of 1.14 and end-Q3 at 1.15. Despite bullish sentiment and positioning, RBC sees limited upside in the near term as catalysts lose momentum and both the Fed and ECB appear steady on policy.

Key Points:

Conservative Forecasts:

• RBC leaves its end-Q2 EUR/USD target unchanged at 1.14 and sees only a modest rise to 1.15 by end-Q3.

• This contrasts with broader market enthusiasm for a more aggressive topside move.

Drivers Behind the YTD Rally:

• Three key factors have pushed EUR/USD higher:

  1. March fiscal news out of Germany

  2. April’s tariff announcement and questions over USD’s reserve status

  3. A sharp swing in market positioning, from net short to net long EUR/USD, supported by options demand

Caution on Tariff Assumptions:

• RBC assumes a continuation of the current tariff status quo, though acknowledges this is a big assumption.

• Without new shocks, EUR/USD is expected to consolidate rather than break out.

Balanced Central Bank Outlook:

• ECB appears done with cuts for now, while the Fed is also showing no urgency to ease.

• This limits relative rate divergence as a driver of further EUR strength.

Softening European Momentum:

• European ETF inflows have stalled after an initial surge.

• Eurozone sentiment and manufacturing indices are sitting near neutral, signaling a lack of macro tailwinds.

Conclusion:

RBC tempers expectations for EUR/USD, citing fading catalysts, neutral macro data, and policy stability on both sides of the Atlantic. While the bullish case remains broadly intact, a consolidative range is more likely than a breakout in the next 1–3 months.

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