EUR/USD to extend rebound to fresh YTD highs – MUFG

EUR/USD regained upward momentum over the past week. Economists at MUFG Bank analyze the pair’s outlook.

USD remains overvalued

We see room for the rebound to extend further to a new year-to-date highs above the April high at just below the 1.1100 level.

The semi-annual testimony from Chair Powell in the week ahead poses the main downside risks to our trade idea although we doubt he will try strongly push the US rate market to price in a second hike into the curve at the current juncture. 

The USD remains overvalued and we expect a further adjustment lower as fundamental drivers of USD strength from last year continue to reverse.