EUR/USD: US yields signal downside risk for now  – MUFG

Analysts at MUFG Bank, point out that the break higher in US yields will likely weigh on the EUR/USD sending the pair to the downside. They consider a trade idea of shorting EUR/USD at 1.1935 with a target at 1.1700 and stop-loss at 1.2080. 

Key Quotes:

“The failure to advance above the 1.2000 level and the lurch lower today on higher UST yields in the US we think signals scope for a further move to the downside for EUR/USD.”

“We don’t see the ECB guidance this week as much of a factor but there is a greater risk we believe that Fed Chair Powell’s efforts to emphasise the Fed’s commitment to loose monetary policy is not as convincing which may see the US dollar advance further over the short-term.”

“We look set to break new highs on the 10-year yield and this will continue to weigh mostly on the low-yielding G10 currencies like JPY, EUR, CHF and SEK. The suspension in certain countries in Europe of using the Astra Zeneca vaccine will inevitably have consequences for speeding up the vaccination roll-out which will see investors push back the timing and extent of euro-zone economic recovery. Cyclically, over the short-term at least, the US looks a lot more compelling which signals downside risks for now.”