Synopsis:

MUFG sees further upside for EUR/USD in the coming months, as historical price action and positioning dynamics suggest continued gains. The recent surge was fueled by a lack of speculative EUR longs, allowing for a sharp move higher following Germany’s fiscal spending announcement. Similar past episodes of large Bund yield shifts indicate further EUR/USD appreciation ahead.

Key Points:

1️⃣ EUR/USD Move Fueled by Lack of EUR Longs 📊

• CFTC data shows short EUR positions were already liquidated before the German fiscal news.
• This left the market under-positioned for the EUR rally, amplifying its impact.

2️⃣ German Fiscal Spending Announcement a Major Catalyst 🇩🇪

• Last week's EUR/USD move was one of the largest in a decade.
• German fiscal expansion has driven a significant repricing in Bund yields.

3️⃣ Historical Precedent Suggests More EUR Upside 🔄

• Past instances of Bund yield shifts over 3 standard deviations have led to sustained EUR/USD gains.
• Since 1980, there have been 28 episodes of this scale, with EUR/USD typically rising further afterward.

Conclusion:

MUFG expects EUR/USD to continue rising in the coming months, as positioning remains supportive and historical price action suggests further upside. The market remains in a post-German fiscal adjustment phase, which could extend the euro’s gains beyond initial reaction highs.