EUR: Continued ECB Support & COVID Divergence Provides A Firmer Foundation For EUR – MUFG

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EUR/USD has gained ground since mid-May. What is the outlook for the pair in the coming weeks?

MUFG Research discusses the EUR outlook and flags a scope for a firmer EUR/USD over the coming weeks.

“The euro has benefitted this month from a reduction in downside risks for the euro-zone. Market participants remain optimistic that EU Leaders will reach an agreement to create a Recovery Fund to support the economy. Progress has also been made in attempts to resolve the standoff between the ECB and the German Constitutional Court over their QE programme. It looks more likely now that ECB support for the economy and debt markets in the euro-zone will not be constrained by the German Constitutional Court’s decision which helps to ease downside risks for the euro,” MUFG notes.

“It is creating firmer foundations for the euro to extend its rebound against the US dollar going forward. At the same time a clear divergence has opened up between spread of COVID-19 in Europe and the US. While fears are building over a pick-up in new cases in the US, it has been notable that case growth has remained low and stable in major European countries even as they have continued to re-open over the past month. If this divergence continues to grow it has the potential to put more of dampener on the economic recovery in the US relative to the euro-zone, and thereby encourage further upside for EUR/USD,” MUFG adds.

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Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.