Analysts at MUFG Bank hold onto a short EUR/USD trade idea and see it moving below parity. They consider the euro will be affected by ongoing fears over disruption to the Eurozone economy and fragmentation risks. 

Key Quotes:

“We expect the EUR to remain under downward pressure in the near-term driven by ongoing fears over disruption to the euro-zone economy from energy supply constraints and fragmentation risks.”

“The release of the euro-zone PMI surveys for July have further reinforced fears for a sharper slowdown/recession for the euro-zone economy in 2H of this year. We also expect Italian bond yields to continue experiencing upward pressure ahead off the snap elections to be held on 25th September.”

“We are not expecting the ECB to step in to support the Italian bond market in response to higher political uncertainty unless yields spike higher. We expect these negative factors to outweigh the ECB’s more front-loaded tightening.”