Analysts at MUFG Bank, point out that the balance of risks continues to shift in favour of an overdue correction lower in the EUR/USD pair. They point out that a break under 1.1700 would open the door to a deeper correction lower.
Key Quotes:
“We continue to believe that EUR/USD appears to be topping out in the near-term after it failed to extend its advance above 1.2000 and has since fallen back below 1.1800. The latest IMM positioning report revealed that long EUR positions are at a record high highlighting that market participants have become overly bullish over the outlook for the EUR. Such elevated positioning will both dampen further upside potential and increases the risk of a correction lower.”
“A break below support 1.1700 would open the door to a deeper correction lower. We have highlighted renewed FX instability in Turkey and the increasing spread of COVID in Europe as two potential triggers for a correction, both of which remain in play. The upcoming Jackson Hole symposium could prove a key test in the week ahead. If EUR/USD is unable to break above 1.2000 after a dovish Fed policy signal, it would strongly suggest a lot of the bad news is already priced into the USD.”
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