MUFG highlights that the sudden drop in U.S. yields has somewhat dimmed the promising technical outlook for the U.S. dollar against the Euro. Despite weak economic data from Europe, the EUR/USD seems to have found a support level at 1.0800. The balanced stance on ECB policy is cited as a potential reason for the quick rebound in EUR/USD. MUFG anticipates that the ECB will pause its rate hikes, which could push EUR/USD lower in the short-term.

Key Points:

• Technical Signals: The EUR/USD failed to maintain a close below the 200-day moving average, suggesting a lack of momentum for a sustained downturn in the currency pair.

• Balanced ECB Decision: The ECB's upcoming policy decision appears finely balanced, which might be contributing to the resilience of the EUR/USD pair.

• Weak U.S. Data: Recent weak economic data from the U.S. is cited as a key factor for the quick rebound in EUR/USD.

• Short-term Outlook: MUFG expects the ECB to hold off on further rate hikes, which they believe will lead to a short-term decline in EUR/USD.

Implications:

For Traders and Investors:

• Short-term: Traders should watch the ECB's decision closely, as a pause in rate hikes could send EUR/USD lower.

• Medium-term: Investors should keep an eye on U.S. economic data, as further weakness could impede the dollar's rally against the Euro.

Conclusion:

The recent drop in U.S. yields and the EUR/USD's failure to sustain a break below its 200-day moving average suggest potential for a turnaround. MUFG believes that if the ECB pauses its rate hikes, as is currently expected, EUR/USD could be pushed lower in the short-term