Over the past month, the euro has consolidated at lower levels. Economists at MUFG Bank maintain a bearish bias and expect the EUR/USD to decline towards the 1.1664 August low.
See – EUR/USD to plunge towards 1.13 by end-2022 – Danske Bank
Downside risks to growth in Europe have increased recently
“We are maintaining a bearish bias for EUR/USD in the month ahead with the pair moving back towards the lows from last month at 1.1664.”
“Investor optimism over the outlook for global growth has deteriorated again recently. Fears have increased that the Fed could outline a faster pace of rate hikes at this week’s FOMC meeting combined with building concern over slowing growth in China.”
“Downside risks to growth in Europe have increased recently from the surge in energy prices. The supply shortage could deteriorate further heading into the winter putting a damper on the economic recovery.”
“Market participants will be watching closely as well the outcome from the upcoming German elections. A more left-leaning government favours a modestly looser fiscal policy stance creating more scope for more investment in the green transition and further steps towards EU fiscal integration. It should create a more supportive environment for the euro in the coming years although the immediate spot impact should be limited. A large polling mistake would be required to trigger a bigger euro reaction by potentially creating more uncertainty over the French election result next year.”
