EUR/USD: upside starting to overshoot relative fundamentals  - BTMU

Analysts from The Bank of Tokyo-Mitsubishi UFJ, have a neutral bias on the EUR/USD for the next week and they see it trading between 1.0500 and 1.0950. 

Key Quotes: 

“The euro has continued to rebound against the US dollar supported by comments from one of President Trump’s leading trade officials, Peter Navarro, who expressed some concern that the euro was “grossly undervalued”. The market has perceived the comment as another attempt to talk down the US dollar which is having a temporary dampening impact in the near-term.”

“However, the current scale of US dollar weakness is starting to look increasingly inconsistent with short-term fundamentals. The US economy continues to strengthen which will encourage a faster pace of Fed rate hikes. The latest NFP report is expected to reveal that the labour market returned to more robust employment in January likely benefitting from higher business confidence since the election. It should help to limit further downside for the US dollar in the near-term.”

“President Trump’s proposed policies for looser regulation, comprehensive tax reform including a border tax adjustment which appears to be gaining greater traction, and higher infrastructure investment should encourage a stronger US dollar beyond the near-term even if he would prefer a weaker currency.”