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EUR/USD: Gains could slow after strong gains in recent months — MUFG

The pair EUR/USD it has risen 1,200 points in the last three months. MUFG Bank analysts they fear that the balance of risks is no longer so favorable for further increases after the recovery. They believe that the pair will trade between 1.0400 and 1.1300 over the next few weeks.

Prices with better cyclical prospects for the euro area economies

“We maintain our bullish bias for EUR/USD, although we are more cautious now that the balance of risks is no longer so upside after strong gains in recent months. The pair has already reversed around three-quarters of the sell-off triggered by the start of the conflict in Ukraine between the end of February and September of last year. Before the start of the conflict, EUR/USD traded between 1.1200 and 1.1500 for most of last February.”

“We expect the ECB to make another 50 basis point hike at next week’s policy meeting and we continue to signal that at least another larger 50 basis point hike is likely at the March policy meeting. We just wait a slowdown in the pace of rate hikes to 25 basis points in the second quarter, when there is more concrete evidence that inflationary pressures are easing.This contrasts with our expectation that the Fed will further slow the pace of rate hikes with a 25 basis points at next week’s FOMC meeting We expect the Fed to halt rate hikes in the second quarter, but not to signal anytime soon The Fed’s relatively aggressive plan for further rate hikes beyond next week could help dampen the selling pressure on the USD for now.”

“There are a number of downside risks to our bullish bias on the euro in the coming month, including: i) the ECB shows signs of being more open to slowing the rate of hikes at the March monetary policy meeting, ii) the recent resilience of eurozone economies turns out to be misleading/short-lived and growth slows sharply with more delay than expected, and iii) geopolitical tensions between the West and Russia escalate further after tanks are sent to support Ukraine, which, together with a rebound in demand from China, drives up European energy prices.”

Source: Fx Street

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