Chief Analyst at Danske Bank Allan von Mehren assessed the prospects of the pair for the next months.
Key Quotes
“EUR/USD remains bid despite ECB Chief Economist Peter Praet’s attempt to backtrack on the recent hawkish rhetoric from Mario Draghi. Indeed, a repricing of the ECB and the euro govie yield curves could potentially fuel further upside in EUR/USD and a reversal of recent years’ EUR debt outflows. This is a key element in in our 6-12M bullish EUR/USD forecast”.
“However, given the ECB’s forward guidance and what is already priced into the front of the EUR money market curve, it is still too early to call for a break above 1.20, in our view. Today, focus will be on the FOMC meeting, where a 25bp rate hike is widely expected. Hence, USD strengthening – if any – should be limited and short-lived today”.
“The outlook for relative rates is still skewed in favour of a lower EUR/USD near term, which together with the lingering trade war, will be prone to deliver pockets of USD strength in the autumn. Hence, we still look for EUR/USD to stay range bound in coming months and this is also what the FX option market is pricing in. However, let’s make it clear, EUR/USD will be sensitive to further repricing of the ECB, and the next big move in EUR/USD will eventually be up as the first rate hike from the ECB draws closer”.
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