EUR/USD is exposed to downside risks, which could push it lower, analysts at Nomura said in their latest client note.

Key quotes

Three "types of exposure that risk pushing EUR lower: higher energy prices in a very Russian gas and oil-dependent Europe higher food prices the cost of sanctions for European banks.”

“Given these risks, we revise down the profile of our EUR/USD forecast to 1.08 in Q2 but with a stronger recovery likely from Q3 to 1.10, 1.14 by year-end 2022 and 1.20 by end-2023.”

“EUR support ahead would likely emerge from an easing of the Russia-Ukraine conflict, a possible Iran nuclear deal or OPEC output surprise that helps to stabilize energy prices, a shift towards more positivity on the euro area growth outlook and increased expectations of ECB monetary policy normalization (a hike in December goes ahead).”

“The negative risks for EUR include an extended geopolitical crisis that intensifies further into Q3, which could lead EUR/USD even closer towards parity of around 1.02-1.03 if we see fresh extremes in energy prices lead to factory closures.”