EUR/USD: Weakness to accelerate if 1.0458 is taken - BTMU

Analysts from The Bank of Tokyo-Mitsubishi UFJ, continue to have a bearish perspective on the EUR/USD pair and expect it to trade between 1.0400 and 1.0900 next week. 

Key Quotes: 

“The surprise election of President Trump has re-energised the US dollar bull market by encouraging a further widening of expectations for monetary policy divergence between the Fed and other major central banks such as the ECB. With significant fiscal stimulus likely on the way in the US under President Trump, the Fed will face greater pressure to tighten monetary policy more quickly to dampen building upside risks to inflation.”

“A stronger US dollar will help to dampen inflation pressures. Fed Chair Yellen’s testimony to Congress will be watched closely to see if she provides any hints over how monetary policy is likely to change in the coming years under President Trump. We expect Chair Yellen to confirm that the Fed remains on course to resume rate hikes next month. The main downside risk for the US dollar would be if Chair Yellen signalled she was prepared to let inflation overshoot.”

“The election of President Trump has also heighted concern amongst market participants over upcoming political risk events in Europe which is weighing on the euro. Opinion polls continue to show that the public could reject constitutional reforms in Italy bringing down Prime Minister Renzi’s government. Euro weakness would accelerate if the cyclical low at 1.0458 from March 2015 is taken out before year end.”