EUR/USD: Range trade in the near term - Danske

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 12, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    Analysts from Danske Bank expect EUR/USD in the near term to range trade, as high risk aversion counterweighs relative interest rates.

    Key Quotes:

    “Relative rates lose importance when positioning becomes stretched. The latest significant EUR/USD short covering points to higher sensitivity to relative rates going forward.

    “The Fed repricing of 2016 has been substantial and markets have postponed the first hike from Q2 16 to Q4 17. This has been a contributing factor for sending EUR/USD higher, as the fall in USD rates has been larger than the corresponding fall in EUR rates.”

    “We think relative rates are negative for EUR/USD near term, as short-term US rates have collapsed and EUR/USD’s sensitivity to relative rates has increased amid more balanced positioning but risk aversion calls for a higher EUR/USD.”

    “The ECB policy response is key for the EUR, as a stabilisation in global risk sentiment would be EUR negative. However, we do not expect our call on the ECB to trigger a significant risk rally, which limits EUR/USD downside.”

    “Given the past month's substantial Fed repricing, the EUR/USD upside from relative rates is limited from here. As a result, risk to relative rates is tilted towards lower EUR-US rates. More balanced positioning suggests EUR/USD would be more sensitive to relative rates.

    “In summary, in coming months we expect EUR/USD to range trade with relative rates weighing on the cross but fundamental factors generating upward pressure.”

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