EUR/USD: Still bearish but a more neutral bias is expected for next week – MUFG

Fritz Louw from MUFG's Global Markets Research points out that next week is very quiet data-wise with no obvious event-risks scheduled. He adds they remain bearish in the EUR/USD pair in general, signaling that a more neutral bias for the week ahead appears sensible.

Key Quotes:

“The euro has performed well against the US dollar this month, gaining nearly 1.2% and returning to what appears to be a more stable trading range around the 1.1200 level. This strength has been driven in part by the ramping up of market expectations of further interest rate cuts by the Federal Reserve. At its lowest, the 10-year US Treasury was yielding 1.593% this month, down over 40bps from the beginning of the month. If this persists, it could start to drag the dollar lower.”

“Weaker European data, as shown most recently by the 2.5% contraction in German industrial production, will encourage the ECB to deliver a more accommodative policy response in September and expectations will continue to build for this. The potential for a restart of quantitative easing, a rate cut as large as 20bps, and the prospect of a tiering of deposits, should constrain a stronger euro.”

“Further pressure on the euro could result from the building concern over a No Deal Brexit by the end of October and the heightened uncertainty leading up to that. These factors could be more supportive of the dollar and so we maintain our bearish EUR/USD bias.”