EUR/USD: Room for further EUR selling in the month ahead – MUFG

The bearish EUR trend is well established. Hence, economists at MUFG Bank expect the EUR/USD pair to continue trending lower heading into the end of the year.

Risks titled to the downside for the EUR

“We are maintaining a bearish bias for EUR/USD for the sixth consecutive month.”

“We still believe that risks are tilted to the downside in the near-term although the risk/reward balance is becoming less attractive. The EUR is now trading at more deeply undervalued levels against the USD. It should make it more challenging for the pair to keep drifting lower in the month ahead.”

“We expect the pair to find strong support at closer to the 1.1200-level which represents around one standard deviation below our PPP model estimate.”

“We see room for ECB-Fed policy divergence expectations to move further against the EUR heading into year-end.”   

“Bearish sentiment towards the EUR reflects building concerns as well over downside risks to the outlook for the eurozone economic recovery. The eurozone economy is on track to expand robustly this year by around 5% but market participants are concerned that growth could slow more notably heading into next year.”