EUR/USD upside could be limited – Danske Bank

Chief Analyst at Danske Bank Allan von Mehren sees the current rally in the pair to be somewhat capped by the potential USD-strength backed by further tightening from the Fed.

Key Quotes

“EUR crosses rose sharply across the board yesterday with EUR/USD breaking above 1.11.The strong momentum in the EUR is seemingly not related to any specific news but focus has turned to the outperforming eurozone economy and the inevitable end to ECB monetary easing”.

“Based on light positioning (according to the IMM), EUR crosses may have room to go higher over coming days”.

“While our strategic bias is long EUR/USD, we see at least two reasons why we think we may see better entry levels near term: (1) while relative economic surprise indices are at extremes in terms of US negative-EU positives, we still expect a turn in global cyclicals with the risk of a more widespread global slowdown from which the eurozone – and the ECB – are unlikely to be immune; (2) in terms of relative monetary policy, we still expect USD to gain support from the Fed’s communication about its QT scheme and a rate hike in July, while the ECB is likely to stay dovish, especially with EUR rising at its current speed”.