EUR/USD to dive towards 2020 lows around 1.0650 if Ukraine conflict continues to escalate – MUFG

The trajectory of the Ukraine war will remain the key driver of EUR/USD performance in the month ahead. Economists at MUFG Bank highlight the key levels to watch depending on how the conflict evolves.

EUR/USD unlikely to surge above 1.12/14

“If the conflict continues to escalate in the month ahead creating greater disruption for the euro-zone economy, then EUR/USD is likely to test and potentially break below the 1.0650 early 2020 lows.”

“If a diplomatic solution is found to bring a quicker end to the conflict then it will set the stage for EUR/USD to rebound. EUR/USD has already climbed back up to the up 1.10-level in recent days. The conflict would need to de-escalate significantly for EUR/USD to trade at higher levels on a sustained basis.” 

“The pair was trading between 1.12 and 1.14 prior to the Ukraine conflict, and it is difficult to see EUR/USD climbing above those levels in the month ahead given that even a short conflict will have left a negative impact on the eurozone economy.”