EUR/USD set to plunge on a break below the 1.1860 mark – MUFG

The euro is continuing to consolidate at lower levels in the near-term. After hitting an intra-day low of 1.1836 on 9th March, EUR/USD has been trading in a narrow range just below the 1.2000-level. Market sentiment towards the euro is becoming increasingly bearish and the world’s most popular currency pair is set to tank on a break below the 200-day moving average at 1.1860, economists at MUFG Bank brief.

Key quotes

“The next key support level is provided by the 200-day moving average which comes in at around 1.1860. The pair has not traded below the 200-day moving average since May of last year, and if broken would send a bearish signal that the correction lower so far this year is likely to extend further.” 

“It was revealed in the latest weekly report that the ECB has already stepped up the pace of purchases in response to upward pressure on government bond yields. Weekly net PEPP QE purchases were increased to EUR21 billion. An increase of roughly 50% compared to the pace in the previous four weeks.” 

“The stronger pushback from the ECB against rising long-term yields compared to the Fed and BoE which have adopted a more hands off approach has contributed in part to the sharp widening in yield spreads against the euro. The yield spread between the 10-year Treasury and German Bund has now fallen back to levels that were in place pre-pandemic at the start of last year.”