Above: EURUSD at four-hour intervals showing 2023 performance.

Strategists at Barclays see diminishing value in chasing the Euro higher from current levels.

The call comes in the wake of the Euro to Dollar exchange rate (EURUSD) breaking out of its six-month 1.08-1.10 range last week and achieving a high at 1.1275 on July 18.

"We are wary of chasing this move further at this stage," says Barclays' FX strategy team in a regular weekly update.

It is noted that from a technical perspective Euro-Dollar "is among the most stretched pairs at the moment".

"But also more fundamentally, U.S. disinflation and peak Fed support continue to run against weak global growth momentum," says the note.

For sure, the key driver of recent Euro-Dollar outperformance comes from the USD side of the equation where last week's undershoot in CPI and PPI inflation have caused ripples across the financial world.

It is clear the U.S. economy is in a deflationary phase and this will mean the Federal Reserve's July interest rate hike (next week) will likely be the last, depriving the U.S. Dollar of interest rate support in the process.

But Barclays reckons a rebound in Eurozone inflation is still required for a more sustained move higher in the EUR via the rotation away from U.S. assets into Europe.

A potential boost to the Euro could yet come from an announcement of additional stimulus measures by China following its Politburo meeting in late July, a development that could boost the global growth outlook.

Near-term risks to the Euro include the prospect of a downshift in ECB rate hike expectations, with ECB Governing Council member Klass Knot saying on Tuesday that a hike in September is not guaranteed.

Knot, a leading 'hawk' on the council, also reckons Eurozone inflation will fall back to the 2.0% target in 2024 in a signal the ECB might be preparing the market for a pause in September.

If confirmed in next week's ECB meeting, the Euro could come under pressure as the September hike is 'priced out'.

Analysts at ING Bank meanwhile reveal their short-term financial fair value model has EURUSD overvaluation at an extended 3.0% on the back of the pair's recent rally.

UBS strategists say this week they maintain a constructive stance on the Euro-Dollar even though they opt to maintain their target for September at 1.12, which suggests limited upside from here over the remainder of the summer.

But a move to 1.14 is forecast by December, 1.16 for March and 1.18 for mid-year 2024.

"We see no need to change forecasts after the pairing's strong move this week," says Thomas Flury, Strategist at UBS.