EUR/USD: Balance of risks shifting in favour of stronger euro – MUFG

Analysts at MUFG Bank point out the EUR/USD pair finally broke above the 1.1000 level and argue the current advance was built on firmer foundations. They consider the pair could test the top of the 1.0800/1.1200 trading range.

Key quotes:

“The EUR has extended its advance against the USD over the past week after finally breaking back above resistance at the 1.1000-level which had held since late March. EUR/USD is on course to strengthen for the fifth consecutive day, it is also the longest run since late March. On that occasion the move higher in EUR/USD proved short-lived as it hit an intra-day high of 1.1163 on 30th March and then quickly retreated back below the 1.1000-level.”

“The current advance though is built on firmer foundations as the pair appears set to test the top of the 1.0800 to 1.1200 trading range that has been in place since last summer.”

“We expect the ECB to expand PEPP by EUR500 billion and to continue asset purchases until at least the middle of next year in response to another downgrade of their staff forecasts. The potential impact on the EUR is mixed. On the one hand looser ECB policy should dampen the EUR’s upward momentum. However, market participants may also welcome reassurance that the ECB continues to stand behind debt markets to prevent spread widening.”

“We expect the EUR to continue trading on a firmer footing in the near-term. EUR/USD appears set to test the top of the 1.0800 to 1.1200 trading range. However, it may still be premature to turn outright USD bearish.”