EUR/USD: Neutral Outlook, Risks Becoming More Balanced - MUFG

EUR/USD: Neutral Outlook, Risks Becoming More Balanced - MUFG

Analysts from The Bank of Tokyo-Mitsubishi UFJ, a cautious Federal Reserve may encourage one last leg lower for the US dollar but risks becoming more balanced in the EUR/USD pair. They expect it to trade neutral between 1.1200 - 1.1500 during the next week.

Key Quotes:

“The euro continues to remain relatively stable against the US dollar in the near-term. The Fed’s reluctance to signal more strongly that it may resume rate hikes at their next meeting in June is likely to keep the US dollar on a softer footing in the nearterm.”

“The Fed remains cautious about resuming rate hikes in light of the slowdown in growth in Q1. It will require building evidence that the US economy is rebounding in the coming months to increase Fed rate hike expectations and offer more support for the US dollar. On the other hand, the FOMC statement was less dovish than in March bringing an end to the run of two consecutive meetings when the Fed had become progressively more cautious.

“ As a result, the Fed statement provides only a weak trigger for further US dollar weakness. The US dollar has already weakened sharply and is more likely moving closer to reaching a bottom in the near-term.”

“EUR/USD remains primarily driven by the US dollar leg. Brexit risk has eased over the past week although so far has had little to no impact on the euro’s performance more broadly.”