EUR/USD suffered wild mood swings as the positive correlation with risk was reestablished, analysts at Danske Bank apprise.
Key quotes
“Lagarde’s unfortunate spread comment re-opened the sovereign risk channel for EUR, reminding markets of its institutional malfunctions and causing a loss of confidence in the single currency.”
“The sweetened access to USD liquidity may alleviate funding strains near term, but after the ECB re-opened the Italy risk factor for EUR and as the Fed has arguably come close to using up its readily available tools, the cross may end up seeing little relief. That goes especially if the call upon EU fiscal policy is not heeded by politicians.”
“We see a tangible risk that EUR/USD could go well below 1.10 in a further disorderly sell-off.”
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