EUR/USD: Positive EZ macro backdrop should limit euro downside – MUFG

The EUR/USD is trading modestly higher on Friday, but remains under pressure- Analysts at MUFG Bank, point out PMIs next week will provide an update on Euro-zone macro conditions.

Key Quotes:

“The short-term positives for the US dollar are compelling when risk is deteriorating and with global growth concerns escalating, USD strength is set to persist. At these times, euro-zone macro conditions can be ignored. If the dollar is advancing, by default the euro will weaken. But next week should serve as a reminder that the macro conditions in the euro-zone remain very positive and indeed could soon be viewed more favourably than in the US. Earlier this year, Europe was heavily criticised for the slow rollout of vaccinations.”

“Looking at the latest vaccination data, eleven key euro-zone countries have a higher proportion of population vaccinated with at least one dose than the US. That seems to be reflected in the Apple Mobility data (chart below) that shows considerably higher mobility based on our GDP-weighted index covering 70% of EZ GDP. We suspect the PMIs will show a drop reflecting concerns but the PMIs should prove more resilient than elsewhere.”

“Given the backdrop of increased risk aversion and positive USD momentum, downside risks remain for EUR although we would argue that the relatively positive macro backdrop in the euro-zone should limit EUR downside, certainly below 1.1600.”