The ECB is more optimistic on growth but the downgrade of inflation projections hurt the euro. What’s next?
Here is their view, courtesy of eFXnews:
Danske Bank FX Strategy Research argues that today’s message from the ECB is not going to be a key catalyst for further EUR/USD upside for three reasons.
“First, ECB rate hikes will be deemed far away by the market as long as euro area inflation struggles to tick higher – and a first rate hike needs to be eyed in order for the upside potential in notably EUR/USD from fundamental factors to be unlocked on a larger scale in our view. This should be a story for late H2.
Second, speculative positioning has turned net long the single currency and likely some longs were liquidated today, driving part of the initial drop in EUR/USD. If cyclical momentum in the eurozone wears off in the coming months the risk is that sentiment could reverse somewhat and fuel EUR selling again.
Third, a Fed that will likely at the meeting next week confirm its determinedness to move on with hikes and balance-sheet reduction down the road could lead markets to reassess the rather soft pricing of the fed funds rate currently in place. As a result, USD strength could return temporarily in the summer,” Danske argues.
In line with this view, Danske still recommends tactical short EUR/USD* targeting a move to 1.0850.
“We remain tactically short EUR/USD for short-term dip on June reality check – and maintain our call for a summer dip in the cross,” Danske advises.
For lots more FX trades from major banks, sign up to eFXplus
By signing up to eFXplus via the link above, you are directly supporting Forex Crunch.
Share
