"Currency depreciation is already arresting the under-performance of the region's universe of blue chips most dependent upon external markets," said Christopher Potts, head of economics and strategy at the European bank.

"We think that it is judicious to remove our underweight position in the German market, at least temporarily, since profit estimates for this market’s large caps should derive benefit from currency relief into the summer," he wrote in a note.

To compensate for the German upgrade, Kepler downgraded Danish equities to neutral.

The recent recovery in the dollar has already raised hopes that currency turbulence for European corporates will now subside, after first-quarter earnings from companies such as Bayer, Solvay or Sanofi took a hit from the stronger euro.

The euro slid to a new 2018 low on Wednesday before recovering slightly, as investors bet on dollar strength due to relatively higher interest rates.

Potts said European equity indices should be able to return to their 2017 highs, although he did not expect this outperformance to be sustained.

"The euro system continues to be excessively reliant upon external sources of demand and profitability," he said.

(Reporting by Danilo Masoni, Editing by Helen Reid)