EUR/USD Rebound Uncertain as Euro Faces Downside Risks
The EUR/USD exchange rate has been on a downward trend, and despite reaching a modest recovery of 0.05% on Thursday after Wednesday's 0.58% decline, analysts are cautioning against betting on a rebound.
According to ING's Francesco Pesole, there is little technical justification for fading the current decline before the Euro reaches the 1.140-1.142 area, where it would be breaching a 1.5 standard deviation misvaluation band, assuming rate differentials remain unchanged.
However, changes in relative interest rates can move the model's valuation range, and crossing this level does not establish a floor or guarantee a recovery.
MUFG also sees growing downside risks, pointing to a broken trendline and a deterioration in options-market sentiment. Its assessment remains positive despite oil prices easing, with momentum remaining with the US dollar even over the very short-term.