MUFG Research sees a scope for EUR/USD correction to extend through 1.15-1.16 zone in the near-term.
"We have been highlighting recently the fact that the FX/Risk correlations have softened of late – nothing too unusual with that. As we move further away from the period of high volatility when correlations were strong, these correlations weaken. All the G10 currency correlations with the S&P 500 have weakened, especially over the last one-month period compared to three months and three-month periods going back covering the turmoil period. That’s not to say the dollar will not rebound if equities turn lower," MUFG notes.
"But assuming that correction in equities is not brutal, the scope for USD recovery is modest. We have an end-Q3 EUR/USD forecast of 1.1700 – we’d see downside moves limited to 1.1500-1.1600," MUFG adds.