MUFG Research discusses EUR outlook and maintains a bearish and short exposure in EUR/USD for 1.13.
"The EUR has fallen to fresh year to date lows against the USD over the past week. It has brought the pair closer to the target on our short EUR/USD trade idea at 1.1300. The performance of the EUR has been even more tightly correlated to developments in short-term yield spreads since the summer," MUFG notes.
"Short-term yield spreads have moved sharply against the EUR over the past month. The yield spread between the 2-year swap in euro-zone and an equally-weighted measure from other G10 markets has moved against the EUR by around 40bps since July. As a result, spreads have now fully reversed the initial move in favour of the EUR that took place when the COVID shock first hit between February and May of 2020," MUFG adds.