MUFG Research warns from chasing EUR higher around current levels.
"The EUR/USD rate has continued to advanced, breaking above the 1.1200 level, the top end of the range we have stated was now in place for EUR/USD. The prospect of a more robust rebound in Europe with COVID-19 well under control and more policy support on the way has helped drive EUR higher. The EU recovery Fund and the prospect of more QE from the ECB tomorrow that reinforces tighter periphery spreads are helping," MUFG notes.
"However, the far bigger negotiation lies ahead. Assuming a deal at EU Leaders level is reached on the Recovery Fund, the deal must then be passed in national parliaments as part of the budget for the period 2021-2027. Merkel’s popularity is on the rise again following Germany’s handling of COVID-19 but Merkel is also on the way out and hence her influence domestically is still not what it was. The haggling in Germany this week is an indication of what lies ahead in Germany and indeed in other countries and is a risk that warrants caution in expecting EUR to continue advancing higher from here," MUFG adds.