MUFG trade of the week: Staying long EUR/USD and long AUD/NZD

MUFG holds a BUY EUR/USD position for its TOTW portfolio (spot reference: 1.0920), with a target at 1.1320, and a stop at 1.0620. MUFG also holds a long AUD/NZD position targeting a move towards 1.1200, with a stop at 1.0700.

“We are maintaining a long EUR/USD trade idea. The pair has retested the top of this year’s trading range between 1.0500 and 1.1000, and we expect the pair to approach the year-to-date high from April right at 1.1100,” MUFG notes.

MUFG adds: “We maintain our long view on the AUD/NZD trade to reflect expectations of narrowing policy divergence between the RBA and RBNZ.”

MUFG sees three reasons why continued dollar strength is not likely.

1. Dollar recovery: the U.S. dollar

   U.S. dollar
   

   The US dollar, ($ symbol, USD symbol) is the paper currency of the United States of America (USD) and the most traded currency globally. It was introduced to the United States in the late eighteenth century, with banknotes not being distributed until the next century. The US dollar, also known informally as the greenback, is the world’s premier reserve currency, in large part due to the importance of the US economy on the world stage. Once backed by gold (in the 20th century), the US dollar is now a fifth currency
   

   The US dollar, ($ symbol, USD symbol) is the paper currency of the United States of America (USD) and the most traded currency globally. It was introduced to the United States in the late eighteenth century, with banknotes not being distributed until the next century. The US dollar, also known informally as the greenback, is the world’s premier reserve currency, in large part due to the importance of the US economy on the world stage. Once backed by gold (in the 20th century), the US dollar is now a fifth currency
   Read this term He rebounded and was stronger against most of the G10’s currencies

   currencies
   

   Currencies are generally a widely circulated form of money, being the primary medium of exchange with regard to the buying and selling of goods and services. They are often issued by a particular government or group of governments, by way of notes and coins. Other forms of currency include earlier metals such as gold and silver, and digital currencies such as bitcoin. Currencies serve as the backbone of the economy of a country or countries, due to the perception of value held by the population
   

   Currencies are generally a widely circulated form of money, being the primary medium of exchange with regard to the buying and selling of goods and services. They are often issued by a particular government or group of governments, by way of notes and coins. Other forms of currency include earlier metals such as gold and silver, and digital currencies such as bitcoin. Currencies serve as the backbone of the economy of a country or countries, due to the perception of value held by the population
   Read this term During the following week a
   
   The previous week of weakness. The MUFG suggests that this pattern of alternating strength and weakness can continue.

2. Tightening Cycles Uncertainty: The market has reached a point in tightening cycles where it is difficult to say how much additional tightening is necessary. This means that both central banks and markets will become more sensitive to incoming economic data. For example, the sharp drop in the value of the euro today was due to poor PMI data.
3. Possible USD Weakness: The MUFG confirms that there is a possibility that the FOMC will continue its tightening pause, and if that happens, it could lead to USD weakening. However, this assumes that there is no significant decline in growth outside the United States. In other words, if the upcoming US economic data supports the idea of ​​the FOMC extending policy tightening, the US dollar’s gains may reverse.

In summary, the MUFG indicates that the strength of the US dollar may not be sustained in the long term due to the uncertainty surrounding tightening cycles and sensitivity to economic data. They believe that if the FOMC continues to stop tightening, and if economic data supports this stance, it could lead to a weaker US dollar.

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