MUFG Research discusses EUR outlook and notes that the likelihood of further political uncertainty in Germany is contributing towards negative euro sentiment in the near-term.
"The euro declined modestly against the dollar yesterday following another disappointing regional election result for the German government. The polls in Germany’s Hesse region revealed that Chancellor Merkel’s CDU party and the Social Democrats both lost over 10% each of their share of support. This follows a similar setback in Bavarian elections earlier this month and raises questions about the fracturing of the German coalition.
Chancellor Merkel has since indicated that she will not seek re-election for the CDU Chair in December’s elections, nor the chancellery after her term ends in 2021," MUFG adds.
MUFG maintains a tactical bearish bias on EUR/USD, for a move towards 1.12 in the near-term (see here).