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Flash: EUR/USD holds bearish bias – BTMU

FXstreet.com (Barcelona) - Bank of Tokyo Mitsubishi UFJ analysts expect EUR/USD to hold a bearish bias ahead and range between 1.2850 and 1.3200.

They begin by noting that they expect the euro to weaken modestly in the week ahead with EUR/USD increasingly struggling to trade above the 1.30-level. They see that the euro is being undermined against the US dollar by rising real yields in the US supported by heightened investor expectations that the Fed may taper QE in the coming months. Further, the release of the non-farm payrolls report for May will prove crucial for near-term dollar direction.

They add that unless the report reveals that employment growth has weakened materially, the US dollar should continue to trade on a firmer footing. US dollar direction will also be impacted by the release of the latest PCE deflator report for May. Overall, they feel that a weaker US dollar could result if disinflationary pressures exceed expectations pushing back Fed QE tapering expectations.

They finish by commenting that, "The main event for euro direction will be the upcoming ECB meeting. We expect the ECB to leave monetary policy unchanged although it remains a close call. With President Draghi likely to maintain an easing bias, an unchanged policy stance will likely still weigh modestly upon the euro. Any signal that the ECB is moving closer to implementing negative deposit rates would weigh more heavily."

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