MUFG Research discusses EUR/USD outlook and shifts to a tactical bearish bias, flagging a scope for retesting the 1.15 level again.
"We have had a notable bounce now in EUR/USD from the intra-day low of 1.1301 hit on 15th August and the top of our range (1.1700) that we set last week was breached – so momentum has been favourable for EUR/USD upside. That should imply sticking with a bullish bias but while momentum and technical are more favourable for EUR/USD than earlier this month, there remain some risks to the downside.
While the Turkey turmoil that led EUR lower earlier this month is not having the same influence now, it would be foolish to assume that will remain the case. USD/TRY is up over 10% this week and while contagion risks were initially exaggerated, continued turmoil will certainly limit EUR upside from here. Also, the BTP/Bund spread is widening again – up 13bps today and a breach of the May high of 290bps is now within sight which would certainly unsettle investors," MUFG argues.