EUR/USD could reach the 1.10 level amid cyclical support– MUFG

Euro Stoxx 600 cycliclas continue to outperform broader market pointing to continued EUR support, economists at MUFG Bank report.

Cyclical support for EUR

“The improving cyclical outlook after nearly six months of building pessimism, primarily related to energy concerns is lifting demand for EUR. The RSI points to the Euro Stoxx 600 as having entered overbought territory so the risk-reward balance is possibly beginning to shift. Still, from an FX perspective the outlook remains favourable. A correction from overbought levels in European equities is unlikely to trigger a large turn in FX.”

“With the ECB currently projecting inflation at 3.4% in 2024, a hawkish 50 bps hike on 2nd Feb could see the terminal rate move higher again. EUR/USD support would persist in such a scenario and could open up a move to the 1.1000 level.”