Christin Tuxen, chief analyst at Danske Bank, notes that the EUR crosses lost some of the upward momentum that has been in place over the past week on political developments.
“A slide in EUR/USD was not least driven by a bout of USD strength, with the greenback turning its back on Trump – possibly in a somewhat delayed reaction to the uptick in US yields towards the end of last week.”
“We stress that while relative economic surprise indices have favoured EUR/USD lately, we think it is too early for a relative cyclical story to take the cross higher, even if a trade deal looks near.”
“In terms of FX forwards, there are, in our view, good reasons why momentum could be starting to turn for EUR/USD forwards, and we could begin to see a gradual move higher again. These include the potential for a repricing of the Fed, the recent tightening of EUR/USD OIS basis over Q1 and Q2 turns and the resumption of USD liquidity tightening after the debt ceiling kicked in this weekend.”