MUFG Research discusses EUR/USD outlook and adopts a neutral bias in the near-term.
The upcoming meeting between Presidents Trump and Xi at the G20 Summit is still seen as a potential “thaw” in relations. The results from the US mid-term elections have also played a role in dampening some upside risks for the US dollar. The divided Congress will limit scope for further fiscal stimulus which could have encouraged more Fed tightening and a stronger US dollar.
However, the immediate implications for the US dollar should remain limited. The US economy is still expanding strongly on the back of previous fiscal stimulus. The Fed should reaffirm that it remains on track to raise rates again in December.
As a result, we see no clear reason for a sustained weakening of the US dollar at the current juncture. In contrast, the balance of risks for the euro is tilted more to the downside for now," MUFG argues.