According to analysts from Danske Bank, the market reaction to the European Central Bank meeting was muted and they point out that EUR/USD could quickly drop back to 1.16 if trade negotiations go bad.
Key Quotes:
“EUR/USD did not see a shake-up with the cross (after ECB meeting). Over the past few months, we have argued that EUR/USD should be regarded as a range play with near-term downside risks due to the rising importance of carry and the risk of an escalating trade war.”
“Trade war risk now seems diminished even if yesterday’s Donald Trump/Jean-Claude Juncker announcement should at this point be regarded as little more than a ‘semi-truce’. From a technical perspective, e.g. resistance levels, channels and moving averages, EUR/USD faces headwinds, meaning that any negative turnaround in the trade negotiations could quickly return the cross towards 1.16.”
“On a 6M horizon, we expect the cross to be a 1.15-1.21 range play, as we need to move closer to the ECB’s first rate hike before the cross can return to the high 1.20s. We forecast the cross at 1.25 in 12M.”
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