Synopsis:

MUFG forecasts that EUR/USD has entered a new trading range of 1.1000-1.1500. This outlook reflects a cautious stance due to ongoing uncertainties, including US economic conditions, elections, and global trade tensions. While the EUR/USD break higher appears sustainable, further sharp dollar selling is not anticipated.

Key Points:

1. New Trading Range:

   • EUR/USD is expected to trade between 1.1000 and 1.1500, marking a shift from previous levels.
   • This range is influenced by anticipated Fed rate cuts and improving growth in the eurozone.

2. Global Uncertainties:

   • Risks include the potential for a soft or hard landing in the US, upcoming US elections, and global trade uncertainties.
   • Weak growth in China further complicates the global economic outlook.

3. Dollar Weakness:

   • The DXY (US Dollar Index) is already down nearly 5% since June, suggesting limited scope for further sharp declines in the dollar.
   • Global factors still argue against a sustained sell-off of the dollar.

Conclusion:

MUFG's analysis suggests that EUR/USD has established a new trading range between 1.1000 and 1.1500. This range is driven by expectations of Fed rate cuts and eurozone growth improvements, amid global uncertainties and a weakened dollar. While the recent EUR/USD increase is seen as sustainable, further significant dollar depreciation is not expected.