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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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