EUR/USD: Concerns over global growth and ECB easing expectations will weigh on the Euro – MUFG

Analysts at MUFG Bank, see the EUR/USD pair with a neutral bias for next week, moving in the range of 1.0950 - 1.1250. 

Key Quotes:

“The euro has broken lower against the US dollar this week. The key factor behind this has been mounting concerns over global growth. Initially the euro had been trading in a range against the dollar of around 1.1175 to around 1.1225 until German GDP data revealed that Europe’s largest economy had contracted in the 2nd quarter, and that China’s industrial production had fallen to 17-year lows.”

“President Trump’s temporary tariff reprieve was unable to boost risk appetite substantially and the US Treasury curve has inverted along the 2-year and 10-year tenors. The Fed’s recent emphasis on the global economy suggests that building risk factors could weigh on
their rate guidance, which could weaken the dollar. But in this risk-off environment it seems more likely that the dollar will be supported. Jackson Hole will be a key event to watch for signs that Fed Chair Powell may change his stance.”

“Comments by ECB Governing Council member Olli Rehn which suggest that the ECB could deliver a package of stimulus measures which could overshoot the market’s expectations, will continue to weigh on the euro. Rates markets are now pricing in a 75% chance of a 20bps cut in the deposit rate by September.”

“In terms of data, next week Eurozone inflation for July is expected to have been negative in July and slow in Y/y% terms. Even on an upside surprise, the euro is unlikely to find support.”