MUFG’s Lee Hardman highlights that EUR/USD is trading just above 1.1400, testing the bottom of its 1.1400–1.1800 range. The Euro has faced selling on weaker data and reduced ECB hike expectations, but recent indicators show resilience. Stronger industrial output and improving confidence lead MUFG to see scope for EUR/USD to move back towards the top of the range as the ECB delivers one final hike.

Euro resilience within established range

"EUR/USD is trading just above the 1.1400-level at the start of this week after one failed attempt break below on sustained basis at the end of last month. The pair is currently testing the bottom of the 1.1400-1.1800 trading range that has been in place over the past year."

"The resilience of the euro area economy is a supportive development for the euro and should help to limit further selling pressure. In addition, a faster-than-expected reversal of the energy price shock should improve investor sentiment towards both the euro area economy and the euro over the remainder of this year."

"We expect improving cyclical momentum in the euro area to encourage EUR/USD to rebound back towards the top of the 1.1400-1.1800 trading range. We are also assuming still that the ECB will follow through and hike rates one final time in September even though upside inflation risks have eased significantly."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)