EUR/USD could move closer to parity if geopolitical risks in the Middle East continue to intensify – MUFG

The EUR has been consolidating at lower levels against the USD so far this month. Economists at MUFG Bank analyze the world’s most popular currency pair.

Bearish bias 

The main risk of the pair moving closer to parity would be if geopolitical risks in the Middle East continue to intensify.

While we expect the conflict between Hamas and Israel to remain contained, a broader regional conflict could trigger a sharper adjustment higher for energy prices and result in a weaker EUR. To better capture this risk we are shifting our bias for the EUR/USD to bearish from natural.

On the positive side for the EUR, there has been more evidence that economic growth in China is picking up heading into year-end which is helping to ease another downside risk that has been weighing on the EUR over the summer.