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EUR/USD to be range-bound over the next 3M – Danske Bank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 22, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Delhi) – Research Team at Danske Bank, suggests that in the near term, the removal of uncertainty about whether the Fed could backtrack on a rate lift-off as in September coupled with the potential for markets to price in more ECB easing during spring could drag EUR/USD a few figures lower still on a 3M horizon.

    Key Quotes

    “We note, however, that the Fed's data-dependent hiking cycle implies that positive US data surprises while USD supportive via the rates channel may not necessarily send EUR/USD lower as the cross has been negatively correlated with risk appetite recently (EUR as funding currency).”

    “Looking further ahead, our view that risks remain tilted towards three rather than four Fed hikes next year suggests that while markets are still pricing in 'too little' on the Fed compared with both our and the FOMC’s projections, the potential for upside to US rates next year still exists.”

    “However, combined with stretched positioning in the FX market, which arguably reduces the sensitivity to monetary policy, the impetus for further EUR/USD downside from relative rates is still set to fade next year, in our view. Thus, we maintain the view that EUR/USD will be range-bound – and notably not reach new cycle lows on a 3M horizon – and then stage a rebound towards 1.16 in 12M as strong euro fundamentals provide support.”
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