EUR/USD: Corrections lower could be an opportunity to position for upside – MUFG

Analysts at MUFG Bank point out that the clear actions announced by the European Central Bank mean a more attractive euro. They see the prospects for the euro are brighter. 

Key Quotes:

“The US dollar is now very oversold and hence we are cautious over very near-term EUR/USD correction lower. That would make sense technically considering the two-week percentage gain as of 12 noon London time is just short of 4%. Excluding the tumultuous COVID-related volatility in March, this gain is the largest two-week gain since Feb 2016 and on most of the occasions when such a gain is recorded, spot corrects the following week. But if that does materialise it may provide opportunity to buy on dips.”

“Recent developments have certainly improved the outlook and while caution is warranted over the very short-term, the outlook has improved. We should not underestimate the steps taken, in particular by the ECB but by Germany also and soon most likely by the EU.”

“The only element of uncertainty now is the EU recovery fund failing to meet expectations – but even then the ECB PEPP support will come into play. We should not underestimate the determination of the ECB.”

“It seems to us that a repricing of fragmentation risks that have beset the EUR for a considerable period of time is now under way. Our stance now has shifted and we view corrections lower in EUR/USD as an opportunity to position for upside.”