Goldman Sachs: Favorable Fundamental News Despite Late-Week Sell-Off

Goldman Sachs note that "the Euro slipped on Friday alongside broad Dollar appreciation, reversing gains earlier in the week. Despite the late-week pullback, we think recent fundamental news should support further EUR/USD gains over the next 1-2 months. First, the domestic covid outlook looks to be improving: the pace of vaccinations in the Big Four EU economies has accelerated to about 1.6 million doses per day over the last week, up from about 1.1m per day in the last week of March, and case growth and hospitalizations in key economies appear to be stabilizing. Second, fund flows into Western European equities have begun to perk up, perhaps due to rising optimism on the growth outlook. Third, Fed Chair Powell indicated in his latest press conference that the FOMC was not ready to begin considering tapering bond purchases (specifically, that the economy is "not close to substantial further progress" and that "it is likely to take some time for substantial further progress to be achieved"). We continue to think that the combination of more stable US front-end pricing and accelerating European growth will result in Euro appreciation through the balance of Q2; we maintain our 3-month target of $1.25."