The Euro-Dollar is struggling to clear 1.1630, with MUFG warning the EUR/USD looks overvalued as European gas and growth risks build.
The Euro to Dollar (EUR/USD) exchange rate has climbed back towards 1.1600, but the move is starting to look less convincing once valuation and Europe’s energy exposure are brought into the picture.
EUR/USD traded around 1.1597 early on Wednesday after reaching 1.1614 earlier in the week.
Softer expectations for Federal Reserve tightening should, on paper, have given the Euro more room to run. It hasn’t quite happened.
MUFG sees the hesitation as significant.
“The 200-day moving average is offering resistance at 1.1630,” the bank said, noting that the best level reached on Monday was 1.1614. “We do certainly sense a high level of caution in buying EUR/USD.”
EUR/USD has recovered from below 1.1570, but the latest advance still leaves the pair short of the 1.1630 area highlighted by MUFG.
The more striking warning comes from MUFG’s valuation model.
“Our short-term regression model for EUR/USD already indicates current spot is about 2.5%-3.0% overvalued,” the bank said.
That is the awkward part. The Dollar has lost some rate support, yet MUFG argues the Euro is already trading richer than underlying short-term fundamentals justify.
Energy is central to the concern.
European gas storage is running just below the range seen in comparable years since 2011, while delayed winter purchases risk becoming more expensive as Asian LNG demand competes for supply.
MUFG also points to unusually low river levels across the Rhine, Danube, Loire and Po. That is not merely a transport problem. Lower waterways can disrupt industry, food production and power generation at the same time.
“If the refilling period continues to disappoint ahead of winter, a more severe terms of trade hit is likely,” MUFG warned.
Near and Medium-Term EUR/USD Outlook: ING Still Sees 1.18
ING is cautious about the immediate upside too, although its medium-term conclusion is notably more bullish.
“Yesterday’s EUR/USD rally stalled shortly above 1.16, and investors will be reluctant to push it much higher given energy price developments,” ING’s Chris Turner said.
ING also thinks the Dollar is “not quite ready to make a sustained break lower just yet”, with higher energy prices and long-dated US Treasury yields offering support. It expects DXY to remain broadly inside 99.40-100.00 in the near term.
Still, the bank keeps EUR/USD at 1.17 for end-September and 1.18 for year-end, based on its view that the Fed does not raise rates.
The wider bank consensus also leans higher, with the median path reaching around 1.18 by Q2 2027, although the full forecast range stretches from roughly 1.10 to 1.21.
So there are really two EUR/USD stories here.
ING still sees a route higher once Fed tightening risk fades.
MUFG is warning that the Euro may already have run ahead of the near-term fundamentals, especially if Europe’s energy bill starts climbing again.
For the immediate trade, 1.1630 looks like the line that matters.
