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The euro corrected lower as yields move higher in the United States and the United Kingdom relative to the Eurozone, explained analysts at MUFG Bank. According to them, the sizeable policy support form the European Central Bank (ECB) should limit any negative fallout for debt markets and the euro. They see the EUR/USD consolidating between 1.20 and 1.25.

Key Quotes:

“The EUR has made a weak start to the New Year. It has been one of the worst performing G10 currencies alongside the SEK. Broad-based euro weakness has resulted in the ECB’s trade-weighted EUR index falling back by around 1% and in process reversing the gains recorded in December. The EUR now has strongest relative downside momentum against the USD. It is a marked turnaround in fortunes for the EUR which was one of the better performing currencies last year. At the current juncture, we believe it’s more likely to be a temporary correction rather than the start of more sustained move lower. The next key support levels for EUR/USD are located between 1.2000-1.2050 and for EUR/GBP between 0.8800-0.8850.”

“There is room for EUR weakness to extend further in the near-term but we do not expect a much deeper correction. EUR/USD is then expected to begin consolidating at higher levels between 1.2000 and 1.2500.”