Analysts at Danske Bank offer their short-term outlook on EUR/USD, in light of Fed’s reflation narrative, which will keep the greenback pressured.
Key quotes
“Worries over virus developments outside the US have started to surface, so is now the time to get EUR negative again?
We doubt that we will witness the large-scale closures seen during the spring and yesterday’s price action suggests that one probably needs to look for US rate rises and/or tech outperformance to get very negative on EUR/USD short term.
In our base case that Fed delivers on its inflation hints with enhanced forward guidance in September, a reflation narrative is set to keep USD under pressure in Q3 and make a test of new year-highs in EUR/USD the dominating risk into the autumn.
If that base case plays out, it would also spell good news for commodity currencies and in particularly the NOK enjoying a large beta to both commodities and European equities.
A key downside risk to EUR/USD and commodity currencies is if Trump scraps the trade deal amid the current China software lash and/or election stress.”
