Lee Hardman, currency analyst at MUFG Bank, see upside risks in near-term in the EUR/USD pair if the European Central Bank (ECB) fails to meet market expectations for more aggressive easing. They expect the pair to trade in the 1.0900/1.1250 range next week.
Key Quotes:
“The euro has staged a relief rally in recent days lifting it back above the 1.1000-level against the US dollar. We believe the stronger euro has been driven by positive developments in the UK where parliament is in the process of passing legislation to seek an extension to the Article 50 period beyond October. We believe that the EU will grant a short extension perhaps until the end of the year or early next year to allow an election to be held before the end of this year in an attempt to break the Brexit deadlock in parliament. An election is most likely to be held later in November.”
“The developments have pushed back No Deal Brexit risk a little but it still remains elevated. The election outcome would be very uncertain and could result in a stronger mandate for a No Deal Brexit. In the week ahead though, Brexit sentiment is likely to remain more supportive for the euro. At the same time, the upcoming ECB policy meeting poses some upside risk for the euro. It will be difficult for the ECB to meet and exceed market expectations for aggressive easing.”
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