According to analysts from Danske Bank, a higher trade range in EUR/USD around 1.15 is justified by a move higher in real rate spreads as the Federal Reserve has withdrawn support. As Q1 progresses, they expect the second stage of the rebound with another leg higher towards 1.20 mid-year.
Key Quotes:
“Political risks remain for the eurozone: an Italian debt crisis and/or a no-deal Brexit could weigh significantly on the euro.”
“Fed-induced USD support is now fading, but a trade deal will in our view be key for the next stage of a EUR/USD rebound. Further, while not a trigger for USD strength in itself, carry will support USD still. Also, short EUR/USD positioning should now be a tad lighter, if still stretched.”
“Together with the risk of setbacks on trade talks and a still fragile macro environment, this leaves room for smaller EUR/USD setbacks near term.”
“Ranges have moved higher with 1.15 now more likely to be the midpoint going forward. As Q1 progresses, we expect the second stage to be reached with a another leg higher materialising.”
“We have lifted our short-term profile a tad and see EUR/USD at 1.15 in 1M, 1.17 (1.13) in 3M, 1.20 (1.18) in 6M, and 1.25 (unchanged) in 12M.“
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