MUFG Research discusses the current market conditions and sees a scope for further EUR/USD decline in the near-term.
"The US dollar and the performance of risk assets matters quite a lot when it comes to inflation expectations and the Fed will need to thread carefully. 11 new COVID cases in New Zealand is an example of central banks abroad having to pare back their own plans to reverse stimulus and with global COVID figures rising and Asia in particular struggling, an earlier start to tapering seems an unnecessary risk at this juncture," MUFG notes.
"Nonetheless, this speculation will persist and act as a key catalyst for US support with further gains likely over the short-term. The break lower in EUR/USD below the 1.1700 level is key and also means we are now close to the entire EUR/USD rally since last November being reversed – the point in time when the COVID vaccines efficacy rates were announced that prompted the strong global risk-on rally," MUFG adds.