EUR/USD a test of 1.20 loses momentum – Danske Bank

In view of analysts at Danske Bank, the pair could still test the 1.20 region, although the potential up move seems to have run out of steam so far.

Key Quotes

“The ECB’s recent flirt with stimulus exit talk has let the genie out of the bottle for EUR/USD and 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. We still see the cross at 1.18 in 12M on valuation arguments”.