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Over the past month the EUR/USD pair has continued to correct lower hitting a year to date low yesterday of 1.1704. The euro has now declined for three consecutive months against the US dollar and is set to suffer further weakness as more restrictions delay outlook for stronger recovery in the eurozone, as reported by MUFG Bank.

Euro has become more undervalued vs. USD again

“The next key technical support level is provided by the lows from last autumn at just above the 1.1600-level. Momentum strongly remains in favour of further euro weakness in the near-term.”

“Developments yesterday highlighted that relative cyclical drivers are set to remain a weight on the euro in the month ahead. French President Macron announced a third nation-wide lockdown in response to the accelerating spread of new COVID variants. Italian President Draghi also announced yesterday that the government will extend current restrictions in place on movement and business openings in high-risk areas until the end of 30th April.”

“The US economy is already re-opening more quickly which is helping to boost confidence in the economic recovery outlook. Building expectations for a widening divergence in performance between the eurozone and the US economies provides a compelling argument in favour of further euro weakness in the month ahead, although the euro has already become more undervalued again in recent months as negative cyclical developments have been priced in.”