MUFG Research discusses the EUR outlook and adopts a neutral bias around current levels.
"The question now is with dollar sentiment more positive will market participants return to running large EUR shorts? The turn from long to substantial short from 2017 into 2018-19 reflected the downturn in economic growth after the false optimism of 2017 and the heightened global trade uncertainty under President Trump. Over that period EUR/USD fell from 1.2500 to around 1.1000 before COVID hit. In our view what lies ahead certainly suggests limited risks of any renewed build-up of large short EUR positions," MUFG notes.
"We believe the outlook in Europe is not consistent with a renewed large build-up of EUR short positions in the market with portfolio flows also set to support EUR," MUFG adds.