MUFG Research discusses EUR/USD outlook and sees a scope for the pair to fall towards 0.9450 on a break of parity.

"It now appears only a matter of time before EUR/USD hits parity for the first time since late in 2002. Beyond parity how much further could the pair fall? Looking at price action in the early 2000’s, the pair fell to a record low of 0.8230 in October 2000 and for the most part fluctuated around the 0.9000-level between 2000 and 2003. According to our long-term PPP valuation model estimate that record low for EUR/USD stood around 2 standard deviations below fair value," MUFG notes. 

"A similar scale of undervaluation (2 standard deviations) would be equivalent today with EUR/USD falling as low as 0.9450 below our long-term PPP valuation model’s current fair value estimate of 1.2700," MUFG adds. 

Corrects typo

• EUR/USD is trading below base 20-day Bollinger bands, bounce likely

• EUR/USD is extending major decline fuelled by Fed policy, deeper fall likely

• Despite this massive drop traders are rarely venturing short

• Last move by specs was to pare an already small bet EUR/USD drops

• Without the restraint of spec shots EUR/USD could fall much further

• Next targets for drop inspired by Fed are 1.0055, 0.9828 and 0.9602

• Unless specs build a big short, good chance those targets are met

• SNB policy is impacting EUR/USD nL1N2YO0K2nL1N2YO0LY

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• BOJ to raise inflation forecast, but keep dovish bias nL4N2YO0MI

• USD/JPY chart bullish, expect big gains to new multi-year highs nL1N2YO0EB

• Japanese importers in dip-buy mode, while exporters selling rallies

• Spot has seen a 135.55-136.22 range on Thursday, according to EBS data

• Expect a rebound in the days ahead to retest the 137.00 2022 high

• 134.49 Fibo support is a 23.6% retrace of the 126.37-137.00 (EBS) rise

• Poll: Yen to remain weaker than key 130-per-dollar at year-end nL4N2YN1F9

• EUR/JPY's 30/60-day long correlations with USD/JPY well above +0.50

• The two currency pairs close in the same direction more often than not

• Cable jumps half-a-cent to threaten 1.20 on reports UK PM Johnson to resign

• See: nL8N2YO1BHnL8N2YO214. 1.20 is ex-support turned resistance level

• Offers ahead of 1.20 capped GBP/USD 24 hours ago, before drop to 1.1877

• 1.1877 = lowest level since March 2020 (1.1413 was 35-year low that month)

• Uncertain who will succeed Johnson amid Tory policy divisions nL8N2YN1OK

• Mordaunt, Sunak, Wallace, Truss and Javid among names-in-frame nL8N2XT1A4

• Tenkan and kijun lines are positive aligned, reinforcing the bullish market

• 14-day momentum remains positive, another bull sign

• USD/JPY, last week, rose to hit a new 24-year high at 137.00

• We are looking to get long on dips to 134.85, ahead of the 134.49 Fibo

• Solid support at 134.49 Fibo, 23.6% of the 126.37-137.00 (EBS) rise

• EUR/JPY sees a 138.10-138.91 Thursday range so far, according to EBS data

• USD/JPY Trader TGM2336 Previous USD/JPY update nL1N2YN0DF

• A clear close below daily trend support Wednesday, the line at 0.8599 today

• We are long from 0.8545 for a corrective run back above 0.8600

• High risk trade given the trend break

• Recent price swings still showing up in tight momentum readings

• Daily RSI is also flat lining at neutral levels

• Bear targets 0.8523 30DMA lower Bolli and 0.8501 daily cloud top

  For more click on FXBUZ

• 1.1962 is the high water-mark for cable since Wednesday's drop to 1.1877

• Rally to 1.1962 aided by rise in risk appetite (GBP is risk-sensitive)

• 1.1877 was lowest level since March 2020 (1.1413 was 35-year low that month)

• Offers expected pre-1.20 if GBP/USD extends north (1.1990 = Wednesday high)

• UK PM Johnson may face another Tory confidence vote as early as Monday

• See: nL8N2YN51MnL8N2YO19M. Johnson would almost certainly lose vote

• AUD/USD opened -0.25% at 0.6783 after USD broadly rose with higher US yields

• It fell to 0.6764 early Asia before bids ahead of 0.6758 support held again

• Late morning AUD/USD broke above 0.6800 when equities commodities rallied

• Lon copper bounced over 3.0% and Dalian iron ore surged nearly 5.0%

• AUD/USD traded to 0.6820 and is near the highs into the afternoon

• AUD/USD resistance is at the 10-day MA at 0.6864 and break eases pressure

• Support @ 50% of the 0.5510/0.8007 move @ 0.6758 and it is proving stubborn

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• EUR/USD opened -0.79% at 1.0183 after USD supported by rising US yields nL1N2YN1TX

• After trading to 1.0176 the EUR/USD attained a bid tone late morning

• Asian markets were upbeat with the AXJ index rising 0.85

• EUR/USD traded to 1.0212 and is aro0und 1.0205 into the afternoon

• EUR/USD is trending lwoer with the 5, 10 & 21-day MAs in a bearish alignment

• No support ahead of 76.4 fibo of all-time low/all-time high at 1.0071

• Resistance @ yesterday's 1.0277 high & break targets former support @ 1.0340/60

• Trend is lower and market is keenly focussed on targeting parity

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• AUD/USD has moved above 0.6800 as Asian session sets an upbeat tone

• Lon copper is +1.1% and Dalian iron ore is over 1.5% higher

• AXJ equity index is +0.45% and the Nikkei is up around 0.75%

• AUD/USD resistance is at yesterday's 0.6825 high and the 10-day MA at 0.6860

• AUD/USD likely benefiting frustrated shorts as key support at 0.6758 holds

• This level is the 50% retracement of the 0.5510/0.8007 move

• from For more click on FXBUZ

• AUD/USD eased to 0.6764 early before buyers ahead of key support stepped in

• It traded to 0.6791 after small lift from solid Aus trade data nAZN0AWNOW

• Impact short-lived as it is back to 0.6780/85

• The 50% of the 0.5510/0.8007 move at 0.6758 proving to be strong support

• Today's dip t 0.6764 marks the 4th straight day of testing 0.6760/70

• Resistance is at yesterday's 0.6825 higher where sellers are tipped

• AUD/USD trending lower with the 5, 10 & 21-day MAs in a bearish alignment

• A break above ythe 10-day MA at 0.6860 would ease the pressure

• For more click on FXBUZ

• GBP/USD on defensive in early Asia after declining 0.3% to 2-year low Wed

• Broadly stronger USD & stagflationary concerns on Britain economy undermine

• BoE's Pill sees no growth for UK economy, warns against big rate hikes

• Britain political turmoil continues to be a background negative nL1N2YN08L

• Fed June meeting minutes reflect hawkish stance, taken in stridenL1N2YN1SA

• Support 1.1880, 1.1850, resistance 1.1975-80, 1.2025-35

• For more click on FXBUZ

• EUR/USD downtrend continues to gain momentum with a further 0.85% drop Wed

• Tumbles to a new two-decade low as rising energy prices accentuate weakness

• Worsening gas crisis in Europe, ECB-Fed policy divergence weigh nS8N2W3080

• Fed June meeting minutes reflect hawkish stance, taken in stridenL1N2YN1SA

• ECB June policy meeting minutes due Thursday; U.S. jobs data Thursday

• Next support 1.0072, 76.4% of 2001-2008 rally; resistance 1.0230-40, 1.0280

• For more click on FXBUZ

• AUD/USD on the defensive in Asia after closing 0.25% lower on Wednesday

• Global recession fears, broadly stronger USD, China COVID curbs undermine

• Pivotal support under increasing pressure as oil, metals continue to drop

• Copper hits almost 20-mth low, oil drops 4% to 12-week low before recovering

• Fed June meeting minutes reflect hawkish stance, taken in stridenL1N2YN1SA

• 50% retracement of 0.5510-0.8007 rise at 0.6758 has held 3 attempts thus far

• Loss opens ratchet towards 0.6648, June 2020 low; resistance 0.6825, 0.6850

• For more click on FXBUZ

ING Research sees a scope for EUR/USD to reach 0.95 on a break of 1.00.

"With EUR/USD closing in on parity we are getting questions from customers as to what a break of parity could look like and how far EUR/USD could fall? 1.00 is probably the biggest psychological level around in FX and fireworks look likely. The options market would size up a worst-case outcome as something like 0.95 over the next month," ING notes.

"One example here could be a speculator wanting to position for a lower EUR/USD, but wanting to cheapen the structure by having a ‘Knock-out’ at 1.00. Should 1.00 trade, the speculator’s position evaporates and questions whether he/she wants to re-apply bearish EUR/USD strategies down at these levels. Were 1.00 to break we would expect volatility to pick up sharply and most likely EUR/USD to gap lower.

How low could EUR/USD go over the next four weeks? Here we look at the FX option markets for expected ranges. Based on the current pricing of EUR/USD implied volatility, a one standard deviation move could see EUR/USD as low as 0.9873, while perhaps a worst case, two standard deviation outcome could see EUR/USD as low as 0.9545," ING adds. 

The dollar index rallied 0.5% on Wednesday, extending recent gains to the doorstep of December 2002's 107.31 pre-collapse high after a batch of above-forecast U.S. data boosted Treasury yields and left EUR/USD slumping toward parity.

Minutes from the June FOMC meeting bolstered markets' existing impression that the Fed has resolved to push rates into restrictive territory if necessary to decelerate inflation nS0N2Y202X.

An above-forecast ISM services index was marred by a sub-50 employment reading, which in turn may have been clouded by difficulties in finding workers.

May job openings exceeded forecasts with an upward revision, while little changed hires, quits and separations left the labor market looking tight nL1N2YN18G -- as job openings out-number seekers two-to-one -- with markets awaiting Friday's non-farm payrolls.

The euro remained under duress over the region's energy vulnerabilities as Russian natural gas supplies dwindle nS8N2W3080, while the ECB prepares to raise rates to fight rising inflation with the hope of somehow avoiding recession and debt market fragmentation.

Another COVID-19 outbreak in China weighed on the global growth outlook as investors feared renewed restrictions could further disrupt supply chains and weigh on demand nL1N2YN038.

EUR/USD fell 0.8%, leaving it down 2.8% this month as parity approaches.

ECB rate hike expectations continued to diverge to the downside from the Fed, sending 2-year bund-Treasury yield spreads down to -2.50% from June's -1.98% high.

By March 2023, the ECB and Fed policy rates are priced at 1.02% and 3.35%, respectively nL1N2YN19P.

Sterling fell 0.3% and traders face political uncertainty, with Prime Minister Boris Johnson beset by a wave of resignations and potential party rule changes that could result in another confidence vote. nL8N2YN51M.

Sterling's modest rebound from Wednesday's 1.1877 low -- its weakest since March 2020 -- looks merely corrective as the UK faces mounting economic issues and the BoE remains gradualist in tightening nL1N2YN158.

BoE rate hikes are priced to peak at roughly 2.9% by March while UK inflation is seen hitting double-digits in H2.

USD/JPY reversed early losses after Treasury yields rebounded from early losses, bolstering two-year spreads.

To get the Fed-led USD/JPY uptrend back on track and past June's 24-year peak at 137, Treasury yields would have to trend higher after Friday's jobs data.

AUD/USD fell 0.2% but again held above crucial support at 0.6758, the 50% Fibo of the entire 2020-21 pandemic wide, aided by the RBA's 50bp rate hike this week and guidance of more to come nL1N2YM07C -- along with steadier stock markets.

High beta currencies were mostly weaker, while bitcoin and ether trod very tight ranges.

ADP suspended release of U.S. private employment reports through the summer as it revamps its methodology, targeting Aug.
31 to reintroduce its new National Employment Report nL1N2YN1TL.

For more click on FXBUZ

• AUD/USD held a tight range overnight, NY opened near 0.6800, pair lifted

• Early US$ weakness drove pair to 0.6825, US data helps erses those gains

• US ratesEDZ2, US$ gain after JOLTS, June PMI data released nL1N2YN18G

• Yen buying drove AUD/JPY below 91.70; USD/CNH rallied toward 6.7195

• AUD/USD fell to 0.67615, bids near 50% Fib 0.5510-0.8007 stall the slide

• Pair rallied toward 0.6780, neared 0.6800 after the Fed minutes nS0N2Y202X

• Falling daily, monthly RSIs are bearish; daily doji may concern shorts

• For more click on FXBUZ

EUR/USD fell to a fresh 20-year low Wednesday and the slide may extend below parity as investors expect a less hawkish ECB as inflation's effects may be waning.

Concerns that global economic growth, which the euro zone is highly dependent upon, could be slowing has helped drive interest rates lower.

German 2-year yields DE2YT=RR struck a 1-1/2-month low.
The drop helped increase the dollar's yield advantage as German-U.S.
spreads US2DE2=RR hit their widest since April, threatening April's monthly wide.

Euribor futures FEIZ3 prices rallied, pushing implied rates lower, sharply off the June 14 low and are close to breaking key daily highs from May as investors reduce expectations for the terminal ECB rate.

Falling euro zone inflation expectations EUIL5YF5Y=RR reinforce views the ECB may be less aggressive with hikes.

Investors' expectations for the terminal Fed rate have also dropped but at a slower pace, helping pressure EUR/USD lower.

EUR/USD has been unable to mount any rally since breaking below the key 1.0335/50 zone and falling daily, monthly RSIs are oversold but not diverging, implying downside momentum remains.

A test of parity seems likely and a drop toward support near 0.9600 could be possible.

For more click on FXBUZ

Credit Agricole CIB Research discusses the EUR outlook and sees a scope for EUR/USD to slide towards parity in the near-term.

"Our results suggest that the EUR/USD fair value consistent with the short-term financial market fundamentals of EUR/USD is closer to 1.05-1.06. In the very near term, the EUR should continue to take its cue from the performance of the beleaguered Eurozone stock markets," CACIB notes. 

EUR/USD could further remain vulnerable because the USD continues to benefit from its role as a high-yielding safe-haven especially given that the US economy is still seen as relatively unscathed by the energy crisis that has engulfed Europe. We think, however, that for EUR/USD to extend its slide towards parity we would have to see rates markets paring back their ECB rate hike expectations and/or peripheral fragmentation risks creeping back in," CACIB adds. 

GBP/USD fell on Wednesday to the latest in a series of two-year lows as the dollar drove relentlessly higher on global inflation and recession fears while UK political tumult added to sterling-negative domestic factors, the combination of which could push the pound back to its pandemic low of 1.1413.

With little technical support between its latest low of 1.1877 and the March 2020 trough, cable will be hard pressed to avoid falling back to that level.

Any interruption in the one-way traffic lower would have to produce a rise above 1.2104, the 50% Fibo of the 1.2331-1.1877 fall, and also 1.2269 -- the 50% Fib of the 1.2660-1.1877 -- to stanch the bleeding.

But few fundamental factors currently argue for a sterling recovery, with PM Boris Johnson beset by cabinet resignations [nS8N2WC07A nL8N2YN425 and the monetary policy backdrop unsupportive since the BoE indicated in March that it would temper its inflation fighting to foster growth.

Rising post-Brexit tensions with the EUover Northern Ireland, accelerating UK inflation at a G7-high 9.1%, energy supply issues and fears of a global slowdown leave the pound in a deep hole.

For more click on FXBUZ

MUFG Research discusses the reasons behind the recent sharp drop in global yields.

"Global bond markets are experiencing a sharp reversal as yields have topped out and are now heading lower. The peak for the 10-year US Treasury bond yield was recorded the day before the last FOMC meeting on 14th June, and it has since fallen by around 70bps even after the Fed raised rates by 75bps on 15th June. The recent sharp drop in global yields has been driven by a combination of factors including: i) safe haven flows as global growth fears intensify, ii) market participants paring back expectations of how far central banks will be able/need to raise rates in light of the deteriorating growth outlook, and iii) an easing of market-based measures of inflation expectations," MUFG notes. 

"In the current circumstances, the traditional safe haven currencies of the US dollar, Swiss franc and yen appear set to continue to outperform in the near-term," MUFG adds. 

• EUR/USD -0.5%, USD/JPY -0.39%, GBP/USD -0.26%, AUD/USD -0.11%

• S&P E-minis -0.05%, DAX 1.44%, Nikkei 225 -1.2%, FTSE 1.62%

• Dollar continues to ride high nL1N2YN0OV

• EUR/USD hits new low and a big target is nearby nL1N2YN0KD

• Dollar likely to stage a rebound against the Japanese yen nL1N2YN0LS

• GBP/USD holds below 1.20 amid UK political turmoil nL1N2YN0FE

• AUD/USD pivots 0.68 after modest rise from two-year low nL1N2YN0MW

• Option Expiries nL4N2YM2NE. U.S. Open nL4N2YN24C