MUFG Research discusses EUR/USD outlook and warns that the pair is still vulnerable to negative shocks despite its recent stabilization ahead of this week’s ECB meeting on Thursday.
“The euro has staged a modest rebound at the start of this week after failing again to break below key support at the 1.1200-level. It may reflect some lightening of short speculative euro positions which in recent weeks have reached their highest levels since December 2016. On that occasion the euro was in the process of bottoming out against the US dollar at just below the 1.0500-level,” MUFG notes.
“Fresh negative shocks could be required to materially weaken the euro. The most immediate is the risk of a “No Deal” Brexit at the end of this week. The current low level of implied euro volatility signals that market participants see little risk of a “No Deal” Brexit shock this week….
The potential for a further escalation in trade tensions between the EU and US could also provide negative shock for the euro. The news on that front has been unfavourable overnight after it was reported that the US is weighing imposing fresh tariffs on USD11 billion of imports from the EU including on civilian aircraft and agricultural goods,” MUFG adds.