MUFG Research discusses EUR/USD outlook and sees a scope for the pair to fall towards 0.9450 on a break of parity.
"It now appears only a matter of time before EUR/USD hits parity for the first time since late in 2002. Beyond parity how much further could the pair fall? Looking at price action in the early 2000’s, the pair fell to a record low of 0.8230 in October 2000 and for the most part fluctuated around the 0.9000-level between 2000 and 2003. According to our long-term PPP valuation model estimate that record low for EUR/USD stood around 2 standard deviations below fair value," MUFG notes.
"A similar scale of undervaluation (2 standard deviations) would be equivalent today with EUR/USD falling as low as 0.9450 below our long-term PPP valuation model’s current fair value estimate of 1.2700," MUFG adds.
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