Analysts at MUFG Bank, are sticking with their neutral outlook for the euro in the month ahead but are widening the range to reflect building risks. They expect the EUR/USD pair to trade between 1.1400 and 1.2200.
Key Quotes:
“The euro has continued to lose upward momentum against the US dollar over the past month with the pair falling towards the bottom of our previous range between 1.1600 and 1.2100. It has resulted in leveraged funds cutting back long euro positions at the fastest pace in eight months. Bullish sentiment towards the euro has been dampened by the renewed spread of COVID-19 in Europe.”
“We expect the ECB to deliver more stimulus perhaps as soon as their next policy meeting on 29th October although more likely on 12th December. The ECB will at least be relieved though that the pace of euro appreciation has slowed recently.”
“We expect the US dollar to be undermined by the outcome from the US Presidential election. The worst near-term outcome for the US dollar would be Joe Biden becomes President and the Democrats also take control of the Senate.”
“We expect the improvement in risk sentiment to help weaken the US dollar even if higher long-term US yields provide some support for the US dollar. As the most liquid alternative to the US dollar, the euro would benefit by default.”
“We are also expecting the EU and UK to reach a Brexit trade deal in the month ahead (…) While a deal would mostly encourage a stronger pound, it could also have a more modest positive impact on the euro.”
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