EUR/USD: Threatening to break higher – MUFG

Analysts at MUFG Bank, see the EUR/USD pair trading between 1.0900 and 1.1350 over the next weeks. Their perspective on the pair is bullish.

Key Quotes:

“The euro is currently attempting to break higher against the US dollar. Key technical resistance is located at 1.1150 – the 200-day moving average. The pair has failed to trade higher on a sustained basis since the global economic slowdown got under way in early 2018. However, there are now building signs that the outlook for the global economy is beginning to improve. Leading indicators in Europe such as the ZEW and  IFO expectations sub-components have rebounded sharply in recent months. Progress towards finalizing a US-China trade deal and the pushing back of No Deal Brexit risk until the end of 2020 should help to create a more supportive environment for growth in the year ahead. However, the incoming hard economic data from Europe remains weak at the end of this year. German industrial production fell sharply again in October which cautions against becoming overly optimistic at the current juncture.”

“Without more convincing evidence of turnaround for the European economy, the euro will continue to find it a hard work to extend its recent rebound against the US dollar from still weak levels. The ECB has clearly signalled that they remain committed to loose monetary policy for longer under new President Christine Lagarde. The low yields on offer in the euro-zone and low FX market volatility are encouraging euro selling through its use as a funding currency. The negative impact on the euro from the ECB’s loose policy stance had been offset recently by the Fed’s renewed balance sheet expansion to boost USD liquidity and prevent year end funding strains. Fed balance sheet expansion is set to continue at least through the 1H 2020.”