EUR//USD flows: ECB Watchful of further EUR gains

ECB Lagarde and the ECB statement noted caution about the adverse economic effects of a further strengthening of the EUR, though Lagarde noted the previous EUR/USD and nominal TWI rise is already in the baseline. We would see scope for a modest rise in EUR/USD to 1.20 by end 2026, but a correction in the U.S. equity market and or a U.S. harder landing would bring us towards 1.30 and cause concern for the ECB.  However, the ECB reaction would be to cut rates to 1.50%, but in these scanarios the Fed could cut quicker.