EUR/USD dips remain shallow – Danske Bank

Analysts at Danske Bank expect occasional pullbacks in the pair to remain shallow.

Key Quotes

“The ECB’s recent flirt with stimulus exit talk has let the genie out of the bottle for EUR/USD and, as we stated, we no longer expect any substantial dip in the cross near term”.

“While Fed eagerness to tighten more than is priced in for both rate hikes and balance-sheet reduction still has the potential to support the USD near term, we stress that it may induce the need for a tightening pause at a later stage”.

“Speculators are now net long EUR/USD (IMM data), which suggests risks are on the downside for the cross near term. That said, we emphasise that any dips in the EUR/USD are likely to prove shallow and short-lived”.

“Thus, we continue to see the cross in a range of plus/minus a few big figures around 1.13 on a 1-3M horizon. In our view, EUR/USD has the potential to rise towards the 1.20s as Fed-ECB divergence fades but the next move from current levels to, say, 1.20 will be more ‘demanding’ than the one from below 1.04 to 1.14 seen in H1”.