Bank of America Merrill Lynch analysts suggests that their constructive view on the EUR this year may need more time to play out as their estimates suggest that EUR/USD pair is undervalued by about 7%, primarily because of the USD overvaluation.

“EUR is actually overvalued against GBP and JPY. Mixed US data & a dovish Fed should have helped to bring EUR/USD back to equilibrium, between 1.20-.25, which is also our forecast range. But, Eurozone data remains very weak, ECB tone has turned dovish, and EUR remains very vulnerable to Brexit risks and trade tensions. Still, our baseline scenario for global eco is consistent with a stronger EUR/USD in months ahead. It is not hard to argue that EUR/USD will appreciate following US-China & US-EU trade deals, a Brexit deal, & improvement in China data following recent policy stimulus. ECB could start talking again about rate normalization. A number of things have to go right for EUR/USD to strengthen, but we remain optimistic”.