EUR/USD: A parity breakout this quarter is now a very possible risk – MUFG

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During the month of June, the euro weakened against the US dollar from 1.0723 to 1.0463. In the opinion of economists MUFG Bank, we could see a period of EUR/USD trading below the key psychological level of 1.00.

EUR/USD may still bounce in Q4

“We suspect that the risk to US and global equities remains to the downside in Q3, as inflation remains high, growth slows and the Fed and other central banks continue to tighten monetary policy. This suggests further downside risks for EUR/USD in the near term as financial conditions tighten further.”

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“Our view that the euro will decline in the short term is also based on the main risk to short-term growth in the euro zone: a further rebound in natural gas prices. As natural gas prices rise, recession risks will increase, putting downward pressure on the euro.”

“We have notably lowered our EUR/USD forecast for the third quarter (from 1.0600) and we believe that a parity break is now a very plausible risk.”

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“Assuming risk conditions slowly turn more favorable and inflation risks recede, EUR/USD has more room to rise beyond Q3/Q4.”

Source: Fx Street

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