MUFG Research discusses EUR/USD outlook and notes that the recent shifts in ECB and Fed rhetoric could trigger a correction lower over the coming months.
"The recent dovish shift in ECB rhetoric that has prompted the market to throw the towel in on speculation over QE tapering as soon as their next meeting on 10th June...At the same time, there has been a recent hawkish shift in Fed rhetoric. Recent comments from Fed officials have signalled that they are moving closer to talking about tapering QE potentially as soon as at their upcoming policy meetings," MUFG notes.
"Taken together, the recent dovish shift in ECB policy rhetoric and contrasting hawkish shift in Fed rhetoric is a bearish development for the euro. So far it is helping dampen EUR/USD’s upward momentum at just above the 1.2200-level, but remains to be seen whether it will be sufficient to trigger a correction lower in the coming months," MUFG adds.