We are maintaining a short EUR/USD trade idea to reflect our conviction that the pair will break decisively below parity. We expect the EUR to remain under downward pressure in the near-term driven by ongoing fears over disruption to the euro-zone economy from energy supply constraints and fragmentation risks. There was some relief this week that NordStream 1 gas supply resumed after the maintenance period came to an end, but the relief should prove short-lived as supply remains well below total capacity (-60%) and is at risk of being cut further. The release of the euro-zone PMI surveys for July has further reinforced fears for a sharper slowdown/recession for the euro-zone economy in 2H of this year. We also expect Italian bond yields to continue experiencing upward pressure ahead off the snap elections to be held on 25th September. We are not hoping the ECB to step in to support the Italian bond market in response to higher political uncertainty unless yields spike higher. We expect these negative factors to outweigh the ECB’s more front-loaded tightening.
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