EUR/USD: Some relief for the euro as Italian political risks ease for now – MUFG

The euro has benefitted from the broad-based US dollar sell-off which has helped to lift EUR/USD back towards the 1.2100-level after hitting an intra-day low at the end of last week of 1.1952. It provides some relief for the euro after a bad start to the year, economists at MUFG Bank report. 

Key quotes

“We continue to believe that the recent correction lower for EUR/USD will prove to be only temporary and have been encouraged by the euro’s ability to quickly bounce back above the 1.2000-level.”

“Market participants have become less concerned by political risks in Italy over the past week which at the margin has helped ease some downward pressure on the euro in the near-term. Mario Draghi will continue to hold meetings today with Italy’s biggest parties in an attempt to secure enough support to form a technocratic government. According to recent reports, he has received positive signals from both former government forces and the opposition during exploratory talks.”

“According to reports, Mario Draghi’s government will set ambitious goals including pursuing a common euro-area budget. A joint budget has been seen as a key missing piece of the euro’s policy framework that would help ensure the current union is better able to deal with economic shocks. Mario Draghi will aim to build on the recent success of establishing an EU Recovery Fund.”